Were These Hedge Funds Wrong About Piling Into SEI Investments Company (SEIC)?

Is SEI Investments Company (NASDAQ:SEIC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is SEI Investments Company (NASDAQ:SEIC) an outstanding investment right now? Money managers were getting more bullish. The number of bullish hedge fund bets advanced by 4 lately. SEI Investments Company (NASDAQ:SEIC) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SEIC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 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 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s review the recent hedge fund action surrounding SEI Investments Company (NASDAQ:SEIC).

What does smart money think about SEI Investments Company (NASDAQ:SEIC)?

At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in SEIC a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in SEI Investments Company (NASDAQ:SEIC). Citadel Investment Group has a $38.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which holds a $25.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Tom Gayner’s Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Phoenician Capital allocated the biggest weight to SEI Investments Company (NASDAQ:SEIC), around 5.3% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, dishing out 2.35 percent of its 13F equity portfolio to SEIC.

Now, key money managers were breaking ground themselves. Phoenician Capital, managed by John Khabbaz, established the most outsized position in SEI Investments Company (NASDAQ:SEIC). Phoenician Capital had $8.2 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new SEIC investors: Michael Gelband’s ExodusPoint Capital, Parvinder Thiara’s Athanor Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SEI Investments Company (NASDAQ:SEIC) but similarly valued. We will take a look at Amdocs Limited (NASDAQ:DOX), ON Semiconductor Corporation (NASDAQ:ON), InterContinental Hotels Group PLC (NYSE:IHG), Pegasystems Inc. (NASDAQ:PEGA), American Homes 4 Rent (NYSE:AMH), 58.com Inc (NYSE:WUBA), and Whirlpool Corporation (NYSE:WHR). This group of stocks’ market caps are closest to SEIC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $658 million. That figure was $234 million in SEIC’s case. 58.com Inc (NYSE:WUBA) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks SEI Investments Company (NASDAQ:SEIC) is more popular among hedge funds. Our overall hedge fund sentiment score for SEIC is 89. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately SEIC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SEIC were disappointed as the stock returned -10.6% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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