Were Hedge Funds Right About Dumping SunCoke Energy, Inc (SXC) ?

How do we determine whether SunCoke Energy, Inc (NYSE:SXC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is SunCoke Energy, Inc (NYSE:SXC) the right pick for your portfolio? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 4 lately. Our calculations also showed that sxc isn’t among the 30 most popular stocks among hedge funds. SXC was in 17 hedge funds’ portfolios at the end of December. There were 21 hedge funds in our database with SXC positions at the end of the previous quarter.

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 32 percentage points since May 2014 through March 12, 2019 (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.

D. E. Shaw

Let’s take a look at the latest hedge fund action surrounding SunCoke Energy, Inc (NYSE:SXC).

Hedge fund activity in SunCoke Energy, Inc (NYSE:SXC)

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in SXC over the last 14 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with SXC Positions

More specifically, Renaissance Technologies was the largest shareholder of SunCoke Energy, Inc (NYSE:SXC), with a stake worth $42.9 million reported as of the end of December. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $13 million. Tontine Asset Management, Nokomis Capital, and Ancora Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since SunCoke Energy, Inc (NYSE:SXC) has faced falling interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds who sold off their full holdings heading into Q3. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the 700 funds monitored by Insider Monkey, comprising close to $1.7 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SunCoke Energy, Inc (NYSE:SXC) but similarly valued. These stocks are Briggs & Stratton Corporation (NYSE:BGG), Aptinyx Inc. (NASDAQ:APTX), Global Partners LP (NYSE:GLP), and The India Fund, Inc. (NYSE:IFN). This group of stocks’ market values resemble SXC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BGG 10 14547 -5
APTX 9 117219 -3
GLP 4 1482 2
IFN 2 1265 1
Average 6.25 33628 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $87 million in SXC’s case. Briggs & Stratton Corporation (NYSE:BGG) is the most popular stock in this table. On the other hand The India Fund, Inc. (NYSE:IFN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks SunCoke Energy, Inc (NYSE:SXC) is more popular among hedge funds. 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 SXC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on SXC were disappointed as the stock returned -0.4% 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.