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Is Select Interior Concepts, Inc. (SIC) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think Select Interior Concepts, Inc. (NASDAQ:SIC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Select Interior Concepts, Inc. (NASDAQ:SIC) a buy, sell, or hold? Money managers are taking a pessimistic view. The number of bullish hedge fund positions went down by 3 in recent months. Our calculations also showed that SIC 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). SIC was in 14 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with SIC positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.

Wil Harkey Nantahala Capital

Wilmot B. Harkey of Nantahala Capital 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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the latest hedge fund action encompassing Select Interior Concepts, Inc. (NASDAQ:SIC).

How have hedgies been trading Select Interior Concepts, Inc. (NASDAQ:SIC)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in SIC 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, Nantahala Capital Management was the largest shareholder of Select Interior Concepts, Inc. (NASDAQ:SIC), with a stake worth $4.4 million reported as of the end of September. Trailing Nantahala Capital Management was Divisar Capital, which amassed a stake valued at $2.1 million. Nokomis Capital, Gratia Capital, and AQR Capital Management 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 Gratia Capital allocated the biggest weight to Select Interior Concepts, Inc. (NASDAQ:SIC), around 4.43% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, dishing out 0.81 percent of its 13F equity portfolio to SIC.

Seeing as Select Interior Concepts, Inc. (NASDAQ:SIC) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds who were dropping their entire stakes by the end of the first quarter. Interestingly, Mark Travis’s Intrepid Capital Management cut the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $3 million in stock. Bradley Louis Radoff’s fund, Fondren Management, also dropped its stock, about $1.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Select Interior Concepts, Inc. (NASDAQ:SIC). These stocks are Alpine Immune Sciences, Inc. (NASDAQ:ALPN), Aridis Pharmaceuticals Inc. (NASDAQ:ARDS), IMPAC Mortgage Holdings, Inc (NYSE:IMH), and IF Bancorp Inc (NASDAQ:IROQ). This group of stocks’ market values resemble SIC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALPN 5 22035 -2
ARDS 1 60 0
IMH 4 416 0
IROQ 1 1879 0
Average 2.75 6098 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $9 million in SIC’s case. Alpine Immune Sciences, Inc. (NASDAQ:ALPN) is the most popular stock in this table. On the other hand Aridis Pharmaceuticals Inc. (NASDAQ:ARDS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Select Interior Concepts, Inc. (NASDAQ:SIC) 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on SIC as the stock returned 57% so far in Q2 (through June 25th) 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.

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