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Were Hedge Funds Right About Santander Consumer USA Holdings Inc (SC)?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtSantander Consumer USA Holdings Inc (NYSE:SC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Santander Consumer USA Holdings Inc (NYSE:SC) has seen a decrease in activity from the world’s largest hedge funds in recent months. SC was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with SC holdings at the end of the previous quarter. Our calculations also showed that SC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to review the key hedge fund action encompassing Santander Consumer USA Holdings Inc (NYSE:SC).

What have hedge funds been doing with Santander Consumer USA Holdings Inc (NYSE:SC)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SC over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is SC A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors has the number one position in Santander Consumer USA Holdings Inc (NYSE:SC), worth close to $192.9 million, amounting to 6.8% of its total 13F portfolio. Coming in second is Windacre Partnership, led by Snehal Amin, holding a $156.2 million position; 7% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Robert Pohly’s Samlyn Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Santander Consumer USA Holdings Inc (NYSE:SC), around 6.97% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, designating 6.81 percent of its 13F equity portfolio to SC.

Because Santander Consumer USA Holdings Inc (NYSE:SC) has experienced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers who sold off their full holdings by the end of the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth about $29.9 million in stock. George Soros’s fund, Soros Fund Management, also sold off its stock, about $7.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 7 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Santander Consumer USA Holdings Inc (NYSE:SC) but similarly valued. We will take a look at Nielsen Holdings plc (NYSE:NLSN), MKS Instruments, Inc. (NASDAQ:MKSI), The Boston Beer Company Inc (NYSE:SAM), and Berry Global Group Inc (NYSE:BERY). This group of stocks’ market valuations match SC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NLSN 33 762761 4
MKSI 27 296258 -1
SAM 24 557916 -2
BERY 34 1206553 -13
Average 29.5 705872 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $424 million in SC’s case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand The Boston Beer Company Inc (NYSE:SAM) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Santander Consumer USA Holdings Inc (NYSE:SC) is even less popular than SAM. 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 gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SC, though not to the same extent, as the stock returned 32.3% since the end of March and outperformed the market as well.

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