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Were Hedge Funds Right About Flocking Into Seaboard Corporation (SEB) ?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. 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 Seaboard Corporation (NYSEAMEX:SEB).

Seaboard Corporation (NYSEAMEX:SEB) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that SEB 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 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.

Irving Kahn

We’re going to analyze the fresh hedge fund action regarding Seaboard Corporation (NYSEAMEX:SEB).

What have hedge funds been doing with Seaboard Corporation (NYSEAMEX:SEB)?

Heading into the first quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SEB over the last 14 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

SEB_apr2019

Among these funds, Kahn Brothers held the most valuable stake in Seaboard Corporation (NYSEAMEX:SEB), which was worth $27.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $20.3 million worth of shares. Moreover, Third Avenue Management, D E Shaw, and Millennium Management were also bullish on Seaboard Corporation (NYSEAMEX:SEB), allocating a large percentage of their portfolios to this stock.

Consequently, some big names were leading the bulls’ herd. Sabrepoint Capital, managed by George Baxter, created the most valuable position in Seaboard Corporation (NYSEAMEX:SEB). Sabrepoint Capital had $2.5 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.7 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks similar to Seaboard Corporation (NYSEAMEX:SEB). These stocks are SYNNEX Corporation (NYSE:SNX), Medidata Solutions Inc (NASDAQ:MDSO), Compania de Minas Buenaventura SA (NYSE:BVN), and Eaton Vance Corp (NYSE:EV). This group of stocks’ market valuations resemble SEB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNX 11 163961 -6
MDSO 11 145668 -3
BVN 6 22122 2
EV 17 125546 2
Average 11.25 114324 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $64 million in SEB’s case. Eaton Vance Corp (NYSE:EV) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura SA (NYSE:BVN) is the least popular one with only 6 bullish hedge fund positions. Seaboard Corporation (NYSEAMEX:SEB) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SEB as the stock returned 30.1% and outperformed the market by an even larger margin.

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

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