Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow over 700 of the best-performing investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Scientific Games Corp (NASDAQ:SGMS), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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 analyze the latest hedge fund action regarding Scientific Games Corp (NASDAQ:SGMS).
Hedge fund activity in Scientific Games Corp (NASDAQ:SGMS)
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SGMS over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the largest position in Scientific Games Corp (NASDAQ:SGMS). Sylebra Capital Management has a $218.9 million position in the stock, comprising 13.4% of its 13F portfolio. The second most bullish fund manager is Debra Fine of Fine Capital Partners, with a $174.3 million position; 22% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism include Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, and Adam Wolfberg and Steven Landry’s EastBay Asset Management.
Since Scientific Games Corp (NASDAQ:SGMS) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies who were dropping their positions entirely last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest position of the 700 funds monitored by Insider Monkey, worth an estimated $30.7 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund cut about $13.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. We will take a look at Harsco Corporation (NYSE:HSC), Meredith Corporation (NYSE:MDP), BEST Inc. (NYSE:BSTI), and Callaway Golf Company (NYSE:ELY). This group of stocks’ market valuations are closest to SGMS’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 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $715 million in SGMS’s case. Callaway Golf Company (NYSE:ELY) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BSTI) is the least popular one with only 12 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ELY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.