U.S. Markets closed

Did Hedge Funds Drop The Ball On SeaWorld Entertainment Inc (SEAS)?

Reymerlyn Martin

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter . We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards SeaWorld Entertainment Inc (NYSE: SEAS ).

SeaWorld Entertainment Inc (NYSE: SEAS ) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that SEAS isn't among the 30 most popular stocks among hedge funds .

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 ( see the details here ). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Curtis Schenker

Let's take a look at the key hedge fund action surrounding SeaWorld Entertainment Inc (NYSE: SEAS ).

What does the smart money think about SeaWorld Entertainment Inc (NYSE:SEAS)?

Heading into the second quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SEAS over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SEAS_jun2019

Among these funds, Hill Path Capital held the most valuable stake in SeaWorld Entertainment Inc (NYSE:SEAS), which was worth $360.4 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $71.5 million worth of shares. Moreover, D E Shaw, Point72 Asset Management, and Balyasny Asset Management were also bullish on SeaWorld Entertainment Inc (NYSE:SEAS), allocating a large percentage of their portfolios to this stock.

Since SeaWorld Entertainment Inc (NYSE:SEAS) has faced a decline in interest from the smart money, it's safe to say that there lies a certain "tier" of fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Guy Shahar's DSAM Partners sold off the largest position of all the hedgies followed by Insider Monkey, comprising close to $9.7 million in stock. Joseph A. Jolson's fund, Harvest Capital Strategies , also cut its stock, about $5.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). We will take a look at Bottomline Technologies (NASDAQ: EPAY ), Pattern Energy Group Inc (NASDAQ: PEGI ), Intelsat S.A. (NYSE: I ), and InterDigital, Inc. (NASDAQ: IDCC ). This group of stocks' market valuations are closest to SEAS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPAY,15,100438,-2 PEGI,10,24823,-1 I,54,733520,12 IDCC,16,172766,-5 Average,23.75,257887,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $775 million in SEAS's case. Intelsat S.A. (NYSE: I ) is the most popular stock in this table. On the other hand Pattern Energy Group Inc (NASDAQ: PEGI ) is the least popular one with only 10 bullish hedge fund positions. SeaWorld Entertainment Inc (NYSE:SEAS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SEAS as the stock returned 23.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey .

Related Content