Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Sasol Limited (NYSE:SSL).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let’s analyze the key hedge fund action regarding Sasol Limited (NYSE:SSL).
How have hedgies been trading Sasol Limited (NYSE:SSL)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SSL over the last 16 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander’s Millennium Management has the number one position in Sasol Limited (NYSE:SSL), worth close to $6.5 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $4.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Renaissance Technologies, Richard S. Pzena’s Pzena Investment Management and Ken Griffin’s Citadel Investment Group.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in Sasol Limited (NYSE:SSL). Citadel Investment Group had $0.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to Sasol Limited (NYSE:SSL). We will take a look at Tenaris S.A. (NYSE:TS), International Flavors & Fragrances Inc (NYSE:IFF), Broadridge Financial Solutions, Inc. (NYSE:BR), and Garmin Ltd. (NASDAQ:GRMN). All of these stocks’ market caps resemble SSL’s market cap.
|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 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $398 million. That figure was $20 million in SSL’s case. Garmin Ltd. (NASDAQ:GRMN) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Sasol Limited (NYSE:SSL) is even less popular than TS. Hedge funds dodged a bullet by taking a bearish stance towards SSL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SSL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SSL investors were disappointed as the stock returned -31.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
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.