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Is Santander Consumer USA Holdings Inc (SC) Going to Burn These Hedge Funds?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the 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 Santander Consumer USA Holdings Inc (NYSE:SC) changed recently.

Santander Consumer USA Holdings Inc (NYSE:SC) was in 26 hedge funds’ portfolios at the end of the second quarter of 2019. SC has seen an increase in support from the world’s most elite money managers lately. There were 22 hedge funds in our database with SC positions at the end of the previous quarter. Our calculations also showed that SC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Roger Ibbotson Zebra Capital

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the recent hedge fund action surrounding Santander Consumer USA Holdings Inc (NYSE:SC).

What have hedge funds been doing with Santander Consumer USA Holdings Inc (NYSE:SC)?

Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SC over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SC_oct2019

More specifically, Canyon Capital Advisors was the largest shareholder of Santander Consumer USA Holdings Inc (NYSE:SC), with a stake worth $232.1 million reported as of the end of March. Trailing Canyon Capital Advisors was Windacre Partnership, which amassed a stake valued at $218.2 million. Samlyn Capital, Arrowstreet Capital, and Azora Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable call position in Santander Consumer USA Holdings Inc (NYSE:SC). Point72 Asset Management had $18 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new SC investors: Paul Tudor Jones’s Tudor Investment Corp, Mike Vranos’s Ellington, and Roger Ibbotson’s Zebra Capital Management.

Let’s go over hedge fund activity in other stocks similar to Santander Consumer USA Holdings Inc (NYSE:SC). We will take a look at Vereit Inc (NYSE:VER), Tapestry, Inc. (NYSE:TPR), Advanced Semiconductor Engineering (NYSE:ASX), and Coty Inc (NYSE:COTY). This group of stocks’ market valuations match SC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VER 23 385560 2
TPR 32 533042 3
ASX 8 184028 -1
COTY 19 149821 -5
Average 20.5 313113 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $837 million in SC’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand Advanced Semiconductor Engineering (NYSE:ASX) is the least popular one with only 8 bullish hedge fund positions. Santander Consumer USA Holdings Inc (NYSE:SC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SC as the stock returned 7.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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