How Did The Scotts Miracle-Gro Company (SMG) Perform In Comparison to Hedge Fund Favorites in 2019?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to The Scotts Miracle-Gro Company (NYSE:SMG) changed recently.

The Scotts Miracle-Gro Company (NYSE:SMG) investors should be aware of an increase in hedge fund sentiment in recent months. SMG was in 30 hedge funds’ portfolios at the end of September. There were 24 hedge funds in our database with SMG positions at the end of the previous quarter. Our calculations also showed that SMG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Ken Fisher of Fisher Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s go over the latest hedge fund action encompassing The Scotts Miracle-Gro Company (NYSE:SMG).

How have hedgies been trading The Scotts Miracle-Gro Company (NYSE:SMG)?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in SMG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of The Scotts Miracle-Gro Company (NYSE:SMG), with a stake worth $146 million reported as of the end of September. Trailing Fisher Asset Management was Markel Gayner Asset Management, which amassed a stake valued at $41.8 million. Winton Capital Management, Citadel Investment Group, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hudson Executive Capital allocated the biggest weight to The Scotts Miracle-Gro Company (NYSE:SMG), around 2.78% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, dishing out 0.63 percent of its 13F equity portfolio to SMG.

As industrywide interest jumped, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in The Scotts Miracle-Gro Company (NYSE:SMG). Arrowstreet Capital had $8.2 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $6.7 million position during the quarter. The other funds with brand new SMG positions are Paul Marshall and Ian Wace’s Marshall Wace, Matthew Tewksbury’s Stevens Capital Management, and Renee Yao’s Neo Ivy Capital.

Let’s now take a look at hedge fund activity in other stocks similar to The Scotts Miracle-Gro Company (NYSE:SMG). We will take a look at Harley-Davidson, Inc. (NYSE:HOG), BOK Financial Corporation (NASDAQ:BOKF), MDU Resources Group Inc (NYSE:MDU), and Axis Capital Holdings Limited (NYSE:AXS). All of these stocks’ market caps are closest to SMG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HOG 18 20463 4
BOKF 16 189307 -3
MDU 21 378844 0
AXS 28 893110 1
Average 20.75 370431 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $370 million. That figure was $414 million in SMG’s case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand BOK Financial Corporation (NASDAQ:BOKF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks The Scotts Miracle-Gro Company (NYSE:SMG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SMG as the stock returned 77% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.