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Were Hedge Funds Right About Dumping Spectrum Brands Holdings, Inc. (SPB)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Spectrum Brands Holdings, Inc. (NYSE:SPB) and determine whether the smart money was really smart about this stock.

Spectrum Brands Holdings, Inc. (NYSE:SPB) investors should pay attention to a decrease in hedge fund sentiment of late. SPB was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 45 hedge funds in our database with SPB positions at the end of the previous quarter. Our calculations also showed that SPB 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).

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

To most traders, hedge funds are perceived as underperforming, old financial tools of years past. While there are more than 8000 funds trading at the moment, Our experts look at the crème de la crème of this group, around 850 funds. It is estimated that this group of investors oversee most of all hedge funds’ total asset base, and by keeping an eye on their top picks, Insider Monkey has figured out many investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s check out the fresh hedge fund action regarding Spectrum Brands Holdings, Inc. (NYSE:SPB).

What have hedge funds been doing with Spectrum Brands Holdings, Inc. (NYSE:SPB)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SPB over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is SPB A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Allan Mecham’s Arlington Value Capital has the biggest position in Spectrum Brands Holdings, Inc. (NYSE:SPB), worth close to $63.6 million, comprising 9.2% of its total 13F portfolio. The second most bullish fund manager is Richard S. Pzena of Pzena Investment Management, with a $47.8 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism encompass Amit Wadhwaney’s Moerus Capital Management, Cliff Asness’s AQR Capital Management and Jeffrey Bronchick’s Cove Street Capital. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Spectrum Brands Holdings, Inc. (NYSE:SPB), around 12.98% of its 13F portfolio. AREX Capital Management is also relatively very bullish on the stock, designating 10.65 percent of its 13F equity portfolio to SPB.

Seeing as Spectrum Brands Holdings, Inc. (NYSE:SPB) has witnessed falling interest from the smart money, it’s easy to see that there lies a certain “tier” of hedgies that slashed their positions entirely in the first quarter. At the top of the heap, Jack Woodruff’s Candlestick Capital Management dropped the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $33.1 million in stock. Renaissance Technologies, also cut its stock, about $15.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 21 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Spectrum Brands Holdings, Inc. (NYSE:SPB) but similarly valued. These stocks are LCI Industries (NYSE:LCII), Moog Inc (NYSE:MOG), Atlas Corp. (NYSE:ATCO), and CVR Energy, Inc. (NYSE:CVI). This group of stocks’ market caps are similar to SPB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LCII 15 77500 -2
MOG 20 68438 -1
ATCO 13 794664 -2
CVI 19 1243640 -12
Average 16.75 546061 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $208 million in SPB’s case. Moog Inc (NYSE:MOG) is the most popular stock in this table. On the other hand Atlas Corp. (NYSE:ATCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Spectrum Brands Holdings, Inc. (NYSE:SPB) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SPB as the stock returned 27.5% in Q2 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.