It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like SunCoke Energy, Inc (NYSE:SXC).
SunCoke Energy, Inc (NYSE:SXC) investors should be aware of an increase in hedge fund sentiment recently. SXC was in 21 hedge funds’ portfolios at the end of the third quarter of 2018. There were 20 hedge funds in our database with SXC positions at the end of the previous quarter. Our calculations also showed that SXC isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Let’s analyze the key hedge fund action surrounding SunCoke Energy, Inc (NYSE:SXC).
Hedge fund activity in SunCoke Energy, Inc (NYSE:SXC)
Heading into the fourth quarter of 2018, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in SXC heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of SunCoke Energy, Inc (NYSE:SXC), with a stake worth $54.5 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $18.5 million. Tontine Asset Management, Ancora Advisors, and Nokomis Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key hedge funds have jumped into SunCoke Energy, Inc (NYSE:SXC) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in SunCoke Energy, Inc (NYSE:SXC). Marshall Wace LLP had $1.7 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $0.2 million position during the quarter. The only other fund with a brand new SXC position is Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks similar to SunCoke Energy, Inc (NYSE:SXC). We will take a look at UroGen Pharma Ltd. (NASDAQ:URGN), Lydall, Inc. (NYSE:LDL), IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP), and Insys Therapeutics Inc (NASDAQ:INSY). All of these stocks’ market caps are closest to SXC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| URGN | 13 | 144642 | 0 |
| LDL | 15 | 42702 | 1 |
| IRCP | 3 | 9927 | 1 |
| INSY | 5 | 35726 | 0 |
| Average | 9 | 58249 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $116 million in SXC’s case. Lydall, Inc. (NYSE:LDL) is the most popular stock in this table. On the other hand IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks SunCoke Energy, Inc (NYSE:SXC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
