Do Hedge Funds Love Radware Ltd. (RDWR)?

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 Radware Ltd. (NASDAQ:RDWR).

Is Radware Ltd. (NASDAQ:RDWR) a sound investment now? Money managers were betting on the stock. The number of long hedge fund bets rose by 2 lately. Radware Ltd. (NASDAQ:RDWR) was in 19 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 21. Our calculations also showed that RDWR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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’ 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 79 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.

Matthew Halbower of Pentwater Capital

Keeping this in mind let’s take a glance at the new hedge fund action regarding Radware Ltd. (NASDAQ:RDWR).

Do Hedge Funds Think RDWR Is A Good Stock To Buy Now?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RDWR over the last 24 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.

When looking at the institutional investors followed by Insider Monkey, Rima Senvest Management, managed by Richard Mashaal, holds the largest position in Radware Ltd. (NASDAQ:RDWR). Rima Senvest Management has a $104.6 million position in the stock, comprising 3% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, holding a $60.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Eric Bannasch’s Cadian Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Radware Ltd. (NASDAQ:RDWR), around 3.04% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, earmarking 0.7 percent of its 13F equity portfolio to RDWR.

As industrywide interest jumped, some big names have been driving this bullishness. Pentwater Capital Management, managed by Matthew Halbower, established the largest position in Radware Ltd. (NASDAQ:RDWR). Pentwater Capital Management had $3.7 million invested in the company at the end of the quarter. Richard Mashaal’s Rima Senvest Management also initiated a $3.1 million position during the quarter. The other funds with brand new RDWR positions are Anand Parekh’s Alyeska Investment Group, Noam Gottesman’s GLG Partners, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks similar to Radware Ltd. (NASDAQ:RDWR). These stocks are Kaman Corporation (NYSE:KAMN), Materialise NV (NASDAQ:MTLS), Canaan Inc. (NASDAQ:CAN), James River Group Holdings Ltd (NASDAQ:JRVR), Montrose Environmental Group, Inc. (NYSE:MEG), Dime Community Bancshares, Inc. (NASDAQ:DCOM), and MiMedx Group Inc (NASDAQ:MDXG). All of these stocks’ market caps resemble RDWR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $261 million in RDWR’s case. James River Group Holdings Ltd (NASDAQ:JRVR) is the most popular stock in this table. On the other hand Montrose Environmental Group, Inc. (NYSE:MEG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Radware Ltd. (NASDAQ:RDWR) is more popular among hedge funds. Our overall hedge fund sentiment score for RDWR is 84.1. 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 returned 24% in 2021 through October 22nd but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on RDWR as the stock returned 15.8% since the end of June (through 10/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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