Steel Partners Holdings LP (SPLP): Are Hedge Funds Right About This Stock?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Steel Partners Holdings LP (NYSE:SPLP).

Is Steel Partners Holdings LP (NYSE:SPLP) the right investment to pursue these days? The smart money was taking an optimistic view. The number of long hedge fund bets rose by 1 recently. Steel Partners Holdings LP (NYSE:SPLP) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. Our calculations also showed that SPLP isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 66 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.

Warren Lichtenstein Steel Partners

Warren Lichtenstein of Steel Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a gander at the new hedge fund action regarding Steel Partners Holdings LP (NYSE:SPLP).

What have hedge funds been doing with Steel Partners Holdings LP (NYSE:SPLP)?

At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPLP over the last 21 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Steel Partners, managed by Warren Lichtenstein, holds the largest position in Steel Partners Holdings LP (NYSE:SPLP). Steel Partners has a $12.3 million position in the stock, comprising 6.3% of its 13F portfolio. Coming in second is Invenomic Capital Management, managed by Ali Motamed, which holds a $0.3 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers with similar optimism consist of Mario Gabelli’s GAMCO Investors, Michael Price’s MFP Investors and . In terms of the portfolio weights assigned to each position Steel Partners allocated the biggest weight to Steel Partners Holdings LP (NYSE:SPLP), around 6.3% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 0.18 percent of its 13F equity portfolio to SPLP.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Invenomic Capital Management, managed by Ali Motamed, established the most valuable position in Steel Partners Holdings LP (NYSE:SPLP). Invenomic Capital Management had $0.3 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Steel Partners Holdings LP (NYSE:SPLP) but similarly valued. We will take a look at VolitionRX Limited (NYSE:VNRX), Fennec Pharmaceuticals Inc. (NASDAQ:FENC), Cherry Hill Mortgage Investment Corp (NYSE:CHMI), AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), Standard AVB Financial Corp. (NASDAQ:STND), Exicure, Inc. (NASDAQ:XCUR), and Culp, Inc. (NYSE:CULP). This group of stocks’ market values are similar to SPLP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VNRX 2 221 -2
FENC 6 56441 -1
CHMI 8 17876 -2
AVEO 8 7851 -5
STND 3 8593 2
XCUR 11 21812 2
CULP 14 18280 0
Average 7.4 18725 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.4 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $13 million in SPLP’s case. Culp, Inc. (NYSE:CULP) is the most popular stock in this table. On the other hand VolitionRX Limited (NYSE:VNRX) is the least popular one with only 2 bullish hedge fund positions. Steel Partners Holdings LP (NYSE:SPLP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPLP is 27.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on SPLP as the stock returned 41.5% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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