Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to SIFCO Industries, Inc. (NYSE:SIF) changed recently.
SIFCO Industries, Inc. (NYSE:SIF) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. Our calculations also showed that SIF 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). 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 Bonso Electronics International Inc. (NASDAQ:BNSO), Ashford Hospitality Trust, Inc. (NYSE:AHT), and AIkido Pharma Inc. (NASDAQ:AIKI) to gather more data points. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Chuck Royce of Royce & Associates
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. With all of this in mind let's take a look at the key hedge fund action surrounding SIFCO Industries, Inc. (NYSE:SIF).
What have hedge funds been doing with SIFCO Industries, Inc. (NYSE:SIF)?
At third quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in SIF a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Minerva Advisors held the most valuable stake in SIFCO Industries, Inc. (NYSE:SIF), which was worth $1.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.3 million worth of shares. Royce & Associates was 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 Minerva Advisors allocated the biggest weight to SIFCO Industries, Inc. (NYSE:SIF), around 1.1% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.0018 percent of its 13F equity portfolio to SIF.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as SIFCO Industries, Inc. (NYSE:SIF) but similarly valued. These stocks are Bonso Electronics International Inc. (NASDAQ:BNSO), Ashford Hospitality Trust, Inc. (NYSE:AHT), AIkido Pharma Inc. (NASDAQ:AIKI), GSE Systems, Inc. (NASDAQ:GVP), Edison Nation, Inc. (NASDAQ:EDNT), Ra Medical Systems, Inc. (NYSE:RMED), and Chicago Rivet & Machine Co. (NYSE:CVR). This group of stocks' market caps resemble SIF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BNSO,1,660,0 AHT,3,1467,-10 AIKI,2,46,1 GVP,2,1303,-1 EDNT,1,59,0 RMED,3,1434,-1 CVR,2,1314,0 Average,2,898,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $2 million in SIF's case. Ashford Hospitality Trust, Inc. (NYSE:AHT) is the most popular stock in this table. On the other hand Bonso Electronics International Inc. (NASDAQ:BNSO) is the least popular one with only 1 bullish hedge fund positions. SIFCO Industries, Inc. (NYSE:SIF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SIF is 73. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 beat the market again by 15.4 percentage points. Unfortunately SIF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SIF were disappointed as the stock returned -1.9% since the end of September (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.