In this article we are going to use hedge fund sentiment as a tool and determine whether Skyline Champion Corporation (NYSE:SKY) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Skyline Champion Corporation (NYSE:SKY) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that SKY isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Vericel Corp (NASDAQ:VCEL), RLJ Lodging Trust (NYSE:RLJ), and TransAlta Corporation (NYSE:TAC) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a peek at the latest hedge fund action regarding Skyline Champion Corporation (NYSE:SKY).
Do Hedge Funds Think SKY Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in SKY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, MAK Capital One was the largest shareholder of Skyline Champion Corporation (NYSE:SKY), with a stake worth $135.8 million reported as of the end of March. Trailing MAK Capital One was SG Capital Management, which amassed a stake valued at $29.8 million. Royce & Associates, Driehaus Capital, and Portolan Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MAK Capital One allocated the biggest weight to Skyline Champion Corporation (NYSE:SKY), around 32.23% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, designating 8.76 percent of its 13F equity portfolio to SKY.
Judging by the fact that Skyline Champion Corporation (NYSE:SKY) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their full holdings by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $1.5 million in stock. Brandon Haley's fund, Holocene Advisors, also dumped its stock, about $1.3 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Skyline Champion Corporation (NYSE:SKY) but similarly valued. We will take a look at Vericel Corp (NASDAQ:VCEL), RLJ Lodging Trust (NYSE:RLJ), TransAlta Corporation (NYSE:TAC), Innospec Inc. (NASDAQ:IOSP), Minerals Technologies Inc (NYSE:MTX), Compañía de Minas Buenaventura S.A.A. (NYSE:BVN), and iHeartMedia, Inc. (NASDAQ:IHRT). This group of stocks' market valuations are closest to SKY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VCEL,18,109350,-6 RLJ,14,70067,4 TAC,11,86696,-5 IOSP,9,116450,-4 MTX,9,101303,-2 BVN,7,93630,-1 IHRT,26,408317,3 Average,13.4,140830,-1.6 [/table]
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $279 million in SKY's case. iHeartMedia, Inc. (NASDAQ:IHRT) is the most popular stock in this table. On the other hand Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 7 bullish hedge fund positions. Skyline Champion Corporation (NYSE:SKY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SKY is 72.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Hedge funds were also right about betting on SKY, though not to the same extent, as the stock returned 11.3% since Q1 (through July 16th) and outperformed the market as well.
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