Were Hedge Funds Right About Souring On Six Flags Entertainment Corp (SIX)?

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Six Flags Entertainment Corp (NYSE:SIX).

Six Flags Entertainment Corp (NYSE:SIX) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that six isn’t among the 30 most popular stocks among hedge funds.

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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Dmitry Balyasny

Let’s take a look at the latest hedge fund action encompassing Six Flags Entertainment Corp (NYSE:SIX).

How have hedgies been trading Six Flags Entertainment Corp (NYSE:SIX)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SIX over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SIX Positions

Among these funds, H Partners Management held the most valuable stake in Six Flags Entertainment Corp (NYSE:SIX), which was worth $370.3 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $80.4 million worth of shares. Moreover, D E Shaw, Balyasny Asset Management, and Millennium Management were also bullish on Six Flags Entertainment Corp (NYSE:SIX), allocating a large percentage of their portfolios to this stock.

Due to the fact that Six Flags Entertainment Corp (NYSE:SIX) has witnessed a decline in interest from the smart money, logic holds that there is a sect of hedgies that decided to sell off their positions entirely in the third quarter. At the top of the heap, Robert Pohly’s Samlyn Capital said goodbye to the largest position of the 700 funds followed by Insider Monkey, valued at an estimated $31.3 million in stock. Brad Dunkley and Blair Levinsky’s fund, Waratah Capital Advisors, also sold off its stock, about $10.3 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Six Flags Entertainment Corp (NYSE:SIX). We will take a look at Casey’s General Stores, Inc. (NASDAQ:CASY), IDACORP Inc (NYSE:IDA), Insulet Corporation (NASDAQ:PODD), and Morningstar, Inc. (NASDAQ:MORN). This group of stocks’ market caps resemble SIX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CASY 18 55523 0
IDA 20 226667 9
PODD 22 393036 0
MORN 20 191984 1
Average 20 216803 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $720 million in SIX’s case. Insulet Corporation (NASDAQ:PODD) is the most popular stock in this table. On the other hand Casey’s General Stores, Inc. (NASDAQ:CASY) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Six Flags Entertainment Corp (NYSE:SIX) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately SIX wasn’t in this group. Hedge funds that bet on SIX were disappointed as the stock lost 8.6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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