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 SPX Corporation (NYSE:SPXC).
Is SPXC a good stock to buy now? Investors who are in the know were getting less bullish. The number of bullish hedge fund bets decreased by 5 in recent months. SPX Corporation (NYSE:SPXC) was in 13 hedge funds' portfolios at the end of September. The all time high for this statistic is 24. Our calculations also showed that SPXC 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are greater than 8000 funds trading today, Our experts choose to focus on the crème de la crème of this group, around 850 funds. Most estimates calculate that this group of people manage the majority of all hedge funds' total capital, and by monitoring their inimitable equity investments, Insider Monkey has spotted many investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Jay Petschek - Corsair Capital
Jay Petschek of Corsair Capital Management
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 15 best blue chip stocks 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. Keeping this in mind let's analyze the latest hedge fund action encompassing SPX Corporation (NYSE:SPXC).
Do Hedge Funds Think SPXC Is A Good Stock To Buy Now?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the second quarter of 2020. By comparison, 19 hedge funds held shares or bullish call options in SPXC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SPX Corporation (NYSE:SPXC) was held by Corsair Capital Management, which reported holding $16.7 million worth of stock at the end of September. It was followed by Ancora Advisors with a $7.6 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Corsair Capital Management allocated the biggest weight to SPX Corporation (NYSE:SPXC), around 5.95% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, earmarking 0.89 percent of its 13F equity portfolio to SPXC.
Seeing as SPX Corporation (NYSE:SPXC) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of hedgies who were dropping their full holdings by the end of the third quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $1.1 million in stock, and Robert Vincent McHugh's Jade Capital Advisors was right behind this move, as the fund sold off about $1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as SPX Corporation (NYSE:SPXC) but similarly valued. These stocks are Canadian Solar Inc. (NASDAQ:CSIQ), Coty Inc (NYSE:COTY), Plexus Corp. (NASDAQ:PLXS), Sabre Corporation (NASDAQ:SABR), Tootsie Roll Industries, Inc. (NYSE:TR), Karuna Therapeutics, Inc. (NASDAQ:KRTX), and First Interstate Bancsystem Inc (NASDAQ:FIBK). This group of stocks' market caps match SPXC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSIQ,25,245570,13 COTY,26,83467,0 PLXS,22,85961,7 SABR,31,486283,-8 TR,15,82763,-4 KRTX,15,168000,-1 FIBK,11,14085,-1 Average,20.7,166590,0.9 [/table]
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $46 million in SPXC's case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 11 bullish hedge fund positions. SPX Corporation (NYSE:SPXC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPXC is 21.3. 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 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SPXC as the stock returned 19.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
