It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in SeaWorld Entertainment Inc (NYSE:SEAS).
SeaWorld Entertainment Inc (NYSE:SEAS) was in 29 hedge funds’ portfolios at the end of December. SEAS investors should pay attention to an increase in support from the world’s most elite money managers lately. There were 22 hedge funds in our database with SEAS positions at the end of the previous quarter. Our calculations also showed that seas isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to review the fresh hedge fund action surrounding SeaWorld Entertainment Inc (NYSE:SEAS).
How are hedge funds trading SeaWorld Entertainment Inc (NYSE:SEAS)?
Heading into the first quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in SEAS over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SeaWorld Entertainment Inc (NYSE:SEAS) was held by Hill Path Capital, which reported holding $309.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $62.5 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Millennium Management.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Hill Path Capital, managed by Scott Ross, initiated the most valuable position in SeaWorld Entertainment Inc (NYSE:SEAS). Hill Path Capital had $309.1 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $14.1 million investment in the stock during the quarter. The other funds with brand new SEAS positions are Jeffrey Jacobowitz’s Simcoe Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s go over hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). These stocks are Acadia Realty Trust (NYSE:AKR), Trinseo S.A. (NYSE:TSE), Xenia Hotels & Resorts Inc (NYSE:XHR), and International Speedway Corporation (NASDAQ:ISCA). This group of stocks’ market valuations are similar to SEAS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $651 million in SEAS’s case. International Speedway Corporation (NASDAQ:ISCA) is the most popular stock in this table. On the other hand Acadia Realty Trust (NYSE:AKR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SEAS wasn’t nearly as popular as these 15 stock and hedge funds that were betting on SEAS were disappointed as the stock returned 9.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.