We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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).
Hedge fund interest in SMART Global Holdings, Inc. (NASDAQ:SGH) shares was flat at the end of last quarter. This is usually a negative indicator. 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 International Seaways, Inc. (NYSE:INSW), Peoples Utah Bancorp (NASDAQ:PUB), and International Money Express, Inc. (NASDAQ:IMXI) to gather more data points. Our calculations also showed that SGH isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the latest hedge fund action regarding SMART Global Holdings, Inc. (NASDAQ:SGH).
How have hedgies been trading SMART Global Holdings, Inc. (NASDAQ:SGH)?
Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SGH over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Silver Lake Partners was the largest shareholder of SMART Global Holdings, Inc. (NASDAQ:SGH), with a stake worth $212.8 million reported as of the end of March. Trailing Silver Lake Partners was AQR Capital Management, which amassed a stake valued at $6.7 million. Crosslink Capital, Renaissance Technologies, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that SMART Global Holdings, Inc. (NASDAQ:SGH) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of money managers that slashed their full holdings by the end of the second quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management said goodbye to the largest investment of all the hedgies followed by Insider Monkey, worth about $0.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $0.2 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SMART Global Holdings, Inc. (NASDAQ:SGH) but similarly valued. These stocks are International Seaways, Inc. (NYSE:INSW), Peoples Utah Bancorp (NASDAQ:PUB), International Money Express, Inc. (NASDAQ:IMXI), and Digimarc Corp (NASDAQ:DMRC). This group of stocks’ market values are similar to SGH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INSW | 15 | 165705 | 4 |
| PUB | 3 | 15043 | -2 |
| IMXI | 12 | 97748 | 1 |
| DMRC | 6 | 50230 | 3 |
| Average | 9 | 82182 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $230 million in SGH’s case. International Seaways, Inc. (NYSE:INSW) is the most popular stock in this table. On the other hand Peoples Utah Bancorp (NASDAQ:PUB) is the least popular one with only 3 bullish hedge fund positions. SMART Global Holdings, Inc. (NASDAQ:SGH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SGH as the stock returned 10.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
