Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards StoneMor Inc. (NYSE:STON).
Is StoneMor Inc. (NYSE:STON) a safe investment right now? Investors who are in the know were in a bearish mood. The number of long hedge fund positions dropped by 1 in recent months. StoneMor Inc. (NYSE:STON) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 5. Our calculations also showed that STON isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 4 hedge funds in our database with STON holdings at the end of June.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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.Now we’re going to take a look at the key hedge fund action surrounding StoneMor Inc. (NYSE:STON).
How have hedgies been trading StoneMor Inc. (NYSE:STON)?
Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STON over the last 21 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in StoneMor Inc. (NYSE:STON) was held by Axar Capital, which reported holding $70.3 million worth of stock at the end of September. It was followed by Mangrove Partners with a $8.6 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified STON as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to StoneMor Inc. (NYSE:STON). We will take a look at Community Bankers Trust Corp. (NASDAQ:ESXB), HC2 Holdings Inc (NYSE:HCHC), 9 Meters Biopharma, Inc. (NASDAQ:NMTR), Ferroglobe PLC (NASDAQ:GSM), MTBC, Inc. (NASDAQ:MTBC), StealthGas Inc. (NASDAQ:GASS), and Corvus Pharmaceuticals, Inc. (NASDAQ:CRVS). This group of stocks’ market valuations are similar to STON’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.4 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $79 million in STON’s case. HC2 Holdings Inc (NYSE:HCHC) is the most popular stock in this table. On the other hand Community Bankers Trust Corp. (NASDAQ:ESXB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks StoneMor Inc. (NYSE:STON) is even less popular than ESXB. Our overall hedge fund sentiment score for STON is 22. 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. Hedge funds clearly dropped the ball on STON as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on STON as the stock returned 27.8% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.