Hedge Funds Are Selling Extreme Networks, Inc (EXTR)

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Extreme Networks, Inc (NASDAQ:EXTR).

Is Extreme Networks, Inc (NASDAQ:EXTR) going to take off soon? Prominent investors were getting less bullish. The number of long hedge fund bets decreased by 5 lately. Extreme Networks, Inc (NASDAQ:EXTR) was in 20 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that EXTR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s review the new hedge fund action surrounding Extreme Networks, Inc (NASDAQ:EXTR).

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

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EXTR over the last 24 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Extreme Networks, Inc (NASDAQ:EXTR), which was worth $37.4 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $21.5 million worth of shares. Voss Capital, Two Sigma Advisors, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Voss Capital allocated the biggest weight to Extreme Networks, Inc (NASDAQ:EXTR), around 7.73% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, setting aside 3.8 percent of its 13F equity portfolio to EXTR.

Because Extreme Networks, Inc (NASDAQ:EXTR) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies who sold off their entire stakes heading into Q3. At the top of the heap, David Rosen’s Rubric Capital Management dropped the largest investment of the 750 funds followed by Insider Monkey, totaling about $21.5 million in stock, and Mark Broach’s Manatuck Hill Partners was right behind this move, as the fund sold off about $0.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Extreme Networks, Inc (NASDAQ:EXTR) but similarly valued. These stocks are Houghton Mifflin Harcourt Co (NASDAQ:HMHC), IAMGOLD Corporation (NYSE:IAG), Broadmark Realty Capital Inc. (NYSE:BRMK), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), e.l.f. Beauty, Inc. (NYSE:ELF), Radware Ltd. (NASDAQ:RDWR), and Kaman Corporation (NYSE:KAMN). All of these stocks’ market caps are similar to EXTR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $158 million in EXTR’s case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 11 bullish hedge fund positions. Extreme Networks, Inc (NASDAQ:EXTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EXTR is 47.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately EXTR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EXTR were disappointed as the stock returned -12.5% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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