Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Steelcase Inc. (NYSE:SCS).
Steelcase Inc. (NYSE:SCS) has experienced an increase in enthusiasm from smart money in recent months. SCS was in 22 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with SCS holdings at the end of the previous quarter. Our calculations also showed that SCS isn’t among the 30 most popular stocks among hedge funds.
According to most market participants, hedge funds are viewed as unimportant, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, Our experts look at the aristocrats of this group, approximately 750 funds. These investment experts watch over the majority of the hedge fund industry’s total asset base, and by tailing their inimitable picks, Insider Monkey has spotted a number of investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Let’s take a glance at the recent hedge fund action regarding Steelcase Inc. (NYSE:SCS).
How are hedge funds trading Steelcase Inc. (NYSE:SCS)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCS over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Steelcase Inc. (NYSE:SCS), with a stake worth $26 million reported as of the end of December. Trailing Pzena Investment Management was Renaissance Technologies, which amassed a stake valued at $11.2 million. AQR Capital Management, Royce & Associates, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have jumped into Steelcase Inc. (NYSE:SCS) headfirst. Venator Capital Management, managed by Brandon Osten, created the largest position in Steelcase Inc. (NYSE:SCS). Venator Capital Management had $1.2 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Paul Tudor Jones’s Tudor Investment Corp, and Joel Greenblatt’s Gotham Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Steelcase Inc. (NYSE:SCS) but similarly valued. We will take a look at Apptio, Inc. (NASDAQ:APTI), Switch, Inc. (NYSE:SWCH), Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), and EnLink Midstream LLC (NYSE:ENLC). This group of stocks’ market caps are closest to SCS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APTI | 22 | 387162 | -3 |
| SWCH | 14 | 107175 | 2 |
| PLAY | 22 | 230987 | 0 |
| ENLC | 15 | 37723 | 2 |
| Average | 18.25 | 190762 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $83 million in SCS’s case. Apptio, Inc. (NASDAQ:APTI) is the most popular stock in this table. On the other hand Switch, Inc. (NYSE:SWCH) is the least popular one with only 14 bullish hedge fund positions. Steelcase Inc. (NYSE:SCS) 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SCS wasn’t nearly as popular as these 15 stock and hedge funds that were betting on SCS were disappointed as the stock returned 10.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
