Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
Is Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) an exceptional investment today? Prominent investors are surely in a bearish mood. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings experienced a decline of 1 lately. There were 15 hedge funds in our database with SCHN holdings at the end of June. 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 decline in popularity but it may still be more popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AEP Industries (NASDAQ:AEPI), Connecticut Water Service, Inc. (NASDAQ:CTWS), and REX American Resources Corp (NYSE:REX) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Keeping this in mind, we’re going to check out the key action encompassing Schnitzer Steel Industries, Inc. (NASDAQ:SCHN).
How are hedge funds trading Schnitzer Steel Industries, Inc. (NASDAQ:SCHN)?
Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2016. On the other hand, there were a total of 18 hedge funds with a bullish position in SCHN at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest hedge funds in the world, holds the most valuable position in Schnitzer Steel Industries, Inc. (NASDAQ:SCHN). Renaissance Technologies has a $22.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’ heels is Richard S. Pzena of Pzena Investment Management, with a $21.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Peter Schliemann’s Rutabaga Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Thiessen’s Vertex One Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) has gone through a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that slashed their entire stakes by the end of the third quarter. Intriguingly, David Costen Haley’s HBK Investments cashed in the biggest stake of all the investors watched by Insider Monkey, worth about $0.4 million in stock, and Joshua Packwood and Schuster Tanger’s Radix Partners was right behind this move, as the fund cut about $0.4 million worth of shares.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) but similarly valued. We will take a look at AEP Industries (NASDAQ:AEPI), Connecticut Water Service, Inc. (NASDAQ:CTWS), REX American Resources Corp (NYSE:REX), and Pace Holdings Corp (NASDAQ:PACE). This group of stocks’ market valuations are closest to SCHN’s market valuation.
[table]
Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position
AEPI,13,141668,1
CTWS,6,14878,1
REX,8,68306,2
PACE,20,235120,0
[/table]
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $92 million in SCHN’s case. Pace Holdings Corp (NASDAQ:PACE) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 6 bullish hedge fund positions. Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PACE might be a better candidate to consider taking a long position in.