As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about SmileDirectClub, Inc. (NASDAQ:SDC).
Is SmileDirectClub, Inc. (NASDAQ:SDC) a bargain? Investors who are in the know were becoming less confident. The number of long hedge fund bets dropped by 2 recently. SmileDirectClub, Inc. (NASDAQ:SDC) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistic is 29. Our calculations also showed that SDC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
To most investors, hedge funds are assumed to be slow, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open today, We hone in on the upper echelon of this club, approximately 850 funds. These money managers handle the majority of the smart money’s total capital, and by tailing their matchless equity investments, Insider Monkey has come up with numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Joel Greenblatt of Gotham Asset Management
With all of this in mind we’re going to take a look at the latest hedge fund action surrounding SmileDirectClub, Inc. (NASDAQ:SDC).
Do Hedge Funds Think SDC Is A Good Stock To Buy Now?
At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. By comparison, 20 hedge funds held shares or bullish call options in SDC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, 683 Capital Partners held the most valuable stake in SmileDirectClub, Inc. (NASDAQ:SDC), which was worth $35.5 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $32.3 million worth of shares. Prentice Capital Management, Millennium Management, and D E Shaw 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 Prentice Capital Management allocated the biggest weight to SmileDirectClub, Inc. (NASDAQ:SDC), around 7.57% of its 13F portfolio. Marathon Partners is also relatively very bullish on the stock, designating 1.45 percent of its 13F equity portfolio to SDC.
Since SmileDirectClub, Inc. (NASDAQ:SDC) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that elected to cut their entire stakes in the second quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $17.8 million in stock, and John Osterweis’s Osterweis Capital Management was right behind this move, as the fund said goodbye to about $8.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to SmileDirectClub, Inc. (NASDAQ:SDC). These stocks are Karuna Therapeutics, Inc. (NASDAQ:KRTX), Macquarie Infrastructure Corporation (NYSE:MIC), John Wiley & Sons Inc (NYSE:JW), Federated Hermes, Inc. (NYSE:FHI), HB Fuller Co (NYSE:FUL), Atkore International Group Inc. (NYSE:ATKR), and Medifast, Inc. (NYSE:MED). This group of stocks’ market values are similar to SDC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KRTX | 18 | 366239 | -5 |
| MIC | 34 | 435659 | 1 |
| JW | 16 | 171399 | 0 |
| FHI | 25 | 223777 | -2 |
| FUL | 12 | 160982 | -4 |
| ATKR | 25 | 180345 | 4 |
| MED | 23 | 376934 | 1 |
| Average | 21.9 | 273619 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $135 million in SDC’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand HB Fuller Co (NYSE:FUL) is the least popular one with only 12 bullish hedge fund positions. SmileDirectClub, Inc. (NASDAQ:SDC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SDC is 38.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately SDC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SDC investors were disappointed as the stock returned -37.9% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Smiledirectclub Inc. (NASDAQ:SDC)
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Disclosure: None. This article was originally published at Insider Monkey.
