Do Hedge Funds Love ScanSource, Inc. (SCSC)?

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Is ScanSource, Inc. (NASDAQ:SCSC) the right investment to pursue these days? Prominent investors are undeniably becoming less confident. The number of long hedge fund positions were trimmed by 6 in recent months. SCSCwas in 11 hedge funds’ portfolios at the end of the third quarter of 2016. There were 17 hedge funds in our database with SCSC positions at the end of the previous quarter. 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 Brooks Automation, Inc. (USA) (NASDAQ:BRKS), HudBay Minerals Inc Ord Shs (NYSE:HBM), and Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s take a look at the key action surrounding ScanSource, Inc. (NASDAQ:SCSC).

How have hedgies been trading ScanSource, Inc. (NASDAQ:SCSC)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards SCSC over the last 5 quarters. So, let’s examine 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, Pzena Investment Management, led by Richard S. Pzena, holds the number one position in ScanSource, Inc. (NASDAQ:SCSC). Pzena Investment Management has a $39.3 million position in the stock, comprising 0.2% of its 13F portfolio. On Pzena Investment Management’s heels is Royce & Associates, led by Chuck Royce, holding a $17.1 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish include Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors. 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.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually said goodbye to their positions entirely. Interestingly, Millennium Management, one of the biggest hedge funds in the world, said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth about $4.2 million in stock. Neil Chriss’s fund, Hutchin Hill Capital, also said goodbye to its stock, about $1.2 million worth.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ScanSource, Inc. (NASDAQ:SCSC) but similarly valued. These stocks are Brooks Automation, Inc. (USA) (NASDAQ:BRKS), HudBay Minerals Inc Ord Shs (NYSE:HBM), Himax Technologies, Inc. (ADR) (NASDAQ:HIMX), and ADTRAN, Inc. (NASDAQ:ADTN). This group of stocks’ market values resemble SCSC’s market value.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $68 million in SCSC’s case. Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) is the most popular stock in this table. On the other hand HudBay Minerals Inc Ord Shs (NYSE:HBM) is the least popular one with only 9 bullish hedge fund positions. ScanSource, Inc. (NASDAQ:SCSC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HIMX might be a better candidate to consider taking a long position in.

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Disclosure: None