Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Radware Ltd. (NASDAQ:RDWR) from the perspective of those elite funds.
Radware Ltd. (NASDAQ:RDWR) has seen an increase in activity from the world’s largest hedge funds recently. RDWR was in 16 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with RDWR holdings at the end of the previous quarter. Our calculations also showed that RDWR 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’ 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a glance at the key hedge fund action surrounding Radware Ltd. (NASDAQ:RDWR).
What have hedge funds been doing with Radware Ltd. (NASDAQ:RDWR)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RDWR over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Rima Senvest Management was the largest shareholder of Radware Ltd. (NASDAQ:RDWR), with a stake worth $142.9 million reported as of the end of September. Trailing Rima Senvest Management was Cadian Capital, which amassed a stake valued at $62.2 million. Renaissance Technologies, Arrowstreet Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have jumped into Radware Ltd. (NASDAQ:RDWR) headfirst. Sensato Capital Management, managed by Ernest Chow and Jonathan Howe, assembled the largest position in Radware Ltd. (NASDAQ:RDWR). Sensato Capital Management had $9.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.8 million investment in the stock during the quarter. The other funds with brand new RDWR positions are Paul Tudor Jones’s Tudor Investment Corp and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Radware Ltd. (NASDAQ:RDWR). We will take a look at Revlon Inc (NYSE:REV), Schweitzer-Mauduit International, Inc. (NYSE:SWM), State Bank Financial Corp (NASDAQ:STBZ), and Trupanion Inc (NASDAQ:TRUP). This group of stocks’ market caps are similar to RDWR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REV | 26 | 196503 | 6 |
| SWM | 14 | 40845 | -2 |
| STBZ | 21 | 129714 | 1 |
| TRUP | 9 | 128533 | 1 |
| Average | 17.5 | 123899 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $321 million in RDWR’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Trupanion Inc (NYSE:TRUP) is the least popular one with only 9 bullish hedge fund positions. Radware Ltd. (NASDAQ:RDWR) 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 REV might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
