In this article we will check out the progression of hedge fund sentiment towards Scorpio Bulkers Inc (NYSE:SALT) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Scorpio Bulkers Inc (NYSE:SALT) investors should be aware of a decrease in hedge fund sentiment of late. SALT was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with SALT positions at the end of the previous quarter. Our calculations also showed that SALT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
William Martin of Raging Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the new hedge fund action surrounding Scorpio Bulkers Inc (NYSE:SALT).
How are hedge funds trading Scorpio Bulkers Inc (NYSE:SALT)?
At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in SALT a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Raging Capital Management was the largest shareholder of Scorpio Bulkers Inc (NYSE:SALT), with a stake worth $8.4 million reported as of the end of September. Trailing Raging Capital Management was Renaissance Technologies, which amassed a stake valued at $3.9 million. Hosking Partners, Royce & Associates, and Hourglass Capital 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 Hourglass Capital allocated the biggest weight to Scorpio Bulkers Inc (NYSE:SALT), around 0.65% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to SALT.
Because Scorpio Bulkers Inc (NYSE:SALT) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers that decided to sell off their entire stakes in the first quarter. At the top of the heap, Charles Lemonides’s Valueworks LLC cut the largest position of the 750 funds watched by Insider Monkey, totaling about $3.1 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $1.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks similar to Scorpio Bulkers Inc (NYSE:SALT). These stocks are BrasilAgro – Companhia Brasileira de Propriedades Agricolas (NYSE:LND), Tiptree Inc. (NASDAQ:TIPT), Premier Financial Bancorp, Inc. (NASDAQ:PFBI), and Farmland Partners Inc (NYSE:FPI). This group of stocks’ market values are similar to SALT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LND | 1 | 35 | 0 |
| TIPT | 4 | 1002 | 1 |
| PFBI | 3 | 4473 | 0 |
| FPI | 7 | 2795 | 1 |
| Average | 3.75 | 2076 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $10 million in SALT’s case. Farmland Partners Inc (NYSE:FPI) is the most popular stock in this table. On the other hand BrasilAgro – Companhia Brasileira de Propriedades Agricolas (NYSE:LND) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Scorpio Bulkers Inc (NYSE:SALT) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately SALT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SALT were disappointed as the stock returned -30.6% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
