It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like SMART Global Holdings, Inc. (NASDAQ:SGH).
SMART Global Holdings, Inc. (NASDAQ:SGH) investors should pay attention to an increase in enthusiasm from smart money in recent months. SGH was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with SGH holdings at the end of the previous quarter. Our calculations also showed that SGH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the fresh hedge fund action surrounding SMART Global Holdings, Inc. (NASDAQ:SGH).
Hedge fund activity in SMART Global Holdings, Inc. (NASDAQ:SGH)
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 70% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SGH over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jim Davidson, Dave Roux and Glenn Hutchins’s Silver Lake Partners has the number one position in SMART Global Holdings, Inc. (NASDAQ:SGH), worth close to $235.9 million, comprising 5.7% of its total 13F portfolio. The second most bullish fund manager is Bloom Tree Partners, led by Alok Agrawal, holding a $10.6 million position; 1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism contain Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Seymour Sy Kaufman and Michael Stark’s Crosslink Capital. In terms of the portfolio weights assigned to each position Silver Lake Partners allocated the biggest weight to SMART Global Holdings, Inc. (NASDAQ:SGH), around 5.69% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, earmarking 1.33 percent of its 13F equity portfolio to SGH.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Bloom Tree Partners, managed by Alok Agrawal, created the largest position in SMART Global Holdings, Inc. (NASDAQ:SGH). Bloom Tree Partners had $10.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $6.4 million investment in the stock during the quarter. The other funds with brand new SGH positions are Richard Driehaus’s Driehaus Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now review hedge fund activity in other stocks similar to SMART Global Holdings, Inc. (NASDAQ:SGH). These stocks are Fiverr International Ltd. (NYSE:FVRR), BlackRock MuniVest Fund, Inc. (NYSE:MVF), Forrester Research, Inc. (NASDAQ:FORR), and Karyopharm Therapeutics Inc (NASDAQ:KPTI). This group of stocks’ market values match SGH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FVRR | 5 | 9126 | -4 |
| MVF | 1 | 586 | 0 |
| FORR | 13 | 46630 | 3 |
| KPTI | 13 | 232234 | 0 |
| Average | 8 | 72144 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $286 million in SGH’s case. Forrester Research, Inc. (NASDAQ:FORR) is the most popular stock in this table. On the other hand BlackRock MuniVest Fund, Inc. (NYSE:MVF) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SMART Global Holdings, Inc. (NASDAQ:SGH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on SGH as the stock returned 20.9% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.
