While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding SolarWinds Corporation (NYSE:SWI).
Is SolarWinds Corporation (NYSE:SWI) a bargain? Prominent investors were in a pessimistic mood. The number of long hedge fund bets fell by 1 lately. SolarWinds Corporation (NYSE:SWI) was in 21 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that SWI 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.
Michael Price of MFP Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks 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. Keeping this in mind let’s view the new hedge fund action encompassing SolarWinds Corporation (NYSE:SWI).
Do Hedge Funds Think SWI Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in SWI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SolarWinds Corporation (NYSE:SWI) was held by Silver Lake Partners, which reported holding $1095.5 million worth of stock at the end of June. It was followed by Southpoint Capital Advisors with a $59.1 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Islet Management. In terms of the portfolio weights assigned to each position Silver Lake Partners allocated the biggest weight to SolarWinds Corporation (NYSE:SWI), around 7.1% of its 13F portfolio. Southpoint Capital Advisors is also relatively very bullish on the stock, dishing out 1.02 percent of its 13F equity portfolio to SWI.
Due to the fact that SolarWinds Corporation (NYSE:SWI) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who were dropping their full holdings by the end of the second quarter. Interestingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $12.8 million in stock. Michael Price’s fund, MFP Investors, also said goodbye to its stock, about $2.9 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks similar to SolarWinds Corporation (NYSE:SWI). We will take a look at Iridium Communications Inc. (NASDAQ:IRDM), Schrodinger, Inc. (NASDAQ:SDGR), Lancaster Colony Corporation (NASDAQ:LANC), Chart Industries, Inc. (NASDAQ:GTLS), JetBlue Airways Corporation (NASDAQ:JBLU), Inovalon Holdings Inc (NASDAQ:INOV), and Ashland Global Holdings Inc.. (NYSE:ASH). This group of stocks’ market caps match SWI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IRDM | 18 | 705019 | -4 |
| SDGR | 20 | 941274 | 3 |
| LANC | 18 | 294439 | -4 |
| GTLS | 27 | 327346 | 8 |
| JBLU | 30 | 401724 | 1 |
| INOV | 20 | 145599 | 3 |
| ASH | 28 | 933462 | -8 |
| Average | 23 | 535552 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $536 million. That figure was $1230 million in SWI’s case. JetBlue Airways Corporation (NASDAQ:JBLU) is the most popular stock in this table. On the other hand Iridium Communications Inc. (NASDAQ:IRDM) is the least popular one with only 18 bullish hedge fund positions. SolarWinds Corporation (NYSE:SWI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SWI is 42.8. 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 gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on SWI as the stock returned 13.2% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.
Follow Solarwinds Corporation (NYSE:SWI)
Follow Solarwinds Corporation (NYSE:SWI)
Suggested Articles:
- Billionaire Nelson Peltz’s Top 8 Stock Picks
- Top 20 Defense Contractors in 2021
- 10 Best Cheap Stocks To Buy Now
Disclosure: None. This article was originally published at Insider Monkey.
