The first week of 2016 was terrible for the stock market, with major U.S. stock indexes having registered losses almost every day so far. Friday started with small declines as well, but indexes recuperated in the afternoon. However, a few stocks were still tumbling at a fast rate. SFX Entertainment Inc (NASDAQ:SFXE) and Southcross Energy Partners LP (NYSE:SXE), for instance, are both down almost 45% each. Republic Airways Holdings Inc. (NASDAQ:RJET) has plummeted by about 10%, Weight Watchers International, Inc. (NYSE:WTW) lost around 19%, and Best Buy Co Inc (NYSE:BBY), has declined by about 3.3%. So, let’s take a look into the events driving these drops, and into what the hedge funds in our database think about these companies.
But, why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance, the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our backtests spanning the 1999-2012 period (see more details here).
Back to the stocks that concern us today, let’s take a look at SFX Entertainment Inc (NASDAQ:SFXE), which is plummeting on Friday, after news transcended that the company is considering filing for bankruptcy. In connection with a waiver of defaults on $30 million in debt, management hired FTI Consulting to help the company study restructuring options.
SFX Entertainment Inc (NASDAQ:SFXE) has been in trouble for a while now, and it seems like a few funds might have seen the dark days coming. At the end of the third quarter, only 12 funds, among more than 730 that we track, held long stakes in the entertainment company. Daniel S. Och’s OZ Management was the largest shareholder in our database, with more than 4.12 million shares of the company, worth about $2.1 million.
Next up is Southcross Energy Partners LP (NYSE:SXE), another big loser on Friday afternoon. The micro cap energy and services company’s stock tumbled after management announced a series of actions aimed at enhancing liquidity. These included a suspension of the company’s quarterly dividend and the closing of a $14 million unsecured loan.
Hedge funds are not particularly bullish on Southcross Energy Partners LP (NYSE:SXE). In fact, after Jim Simons‘ Renaissance Technologies closed its position in the company, only one institution among those we track, held a long stake in the firm: Zimmer Partners. After having boosted its stake by 10% over the third quarter, the fund managed by Stuart J. Zimmer disclosed ownership of 994,053 shares of the company, worth about $4.9 million.
In the next page we will find out why Republic Airways, Weight Watchers and Best Buy were also falling on Friday.