Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like Solaredge Technologies Inc (NASDAQ:SEDG).
Solaredge Technologies Inc (NASDAQ:SEDG) has experienced a decrease in activity from the world’s largest hedge funds in recent months. SEDG was in 20 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with SEDG positions at the end of the previous quarter. Our calculations also showed that SEDG 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.
Israel Englander of Millennium Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the new hedge fund action surrounding Solaredge Technologies Inc (NASDAQ:SEDG).
What have hedge funds been doing with Solaredge Technologies Inc (NASDAQ:SEDG)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in SEDG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Solaredge Technologies Inc (NASDAQ:SEDG), with a stake worth $55.8 million reported as of the end of September. Trailing Renaissance Technologies was Noked Capital, which amassed a stake valued at $41.9 million. Rima Senvest Management, Citadel Investment Group, and Millennium Management 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 Noked Capital allocated the biggest weight to Solaredge Technologies Inc (NASDAQ:SEDG), around 44.04% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to SEDG.
Seeing as Solaredge Technologies Inc (NASDAQ:SEDG) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of money managers that slashed their full holdings in the third quarter. Intriguingly, Anthony Bozza’s Lakewood Capital Management dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $10.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dumped about $4.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Solaredge Technologies Inc (NASDAQ:SEDG) but similarly valued. These stocks are Cimpress plc (NASDAQ:CMPR), MSC Industrial Direct Co Inc (NYSE:MSM), Stifel Financial Corp. (NYSE:SF), and Nomad Foods Limited (NYSE:NOMD). This group of stocks’ market values are similar to SEDG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMPR | 9 | 705142 | -3 |
| MSM | 21 | 89777 | 5 |
| SF | 12 | 154909 | -3 |
| NOMD | 37 | 486749 | 5 |
| Average | 19.75 | 359144 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $359 million. That figure was $220 million in SEDG’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Cimpress plc (NASDAQ:CMPR) is the least popular one with only 9 bullish hedge fund positions. Solaredge Technologies Inc (NASDAQ:SEDG) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately SEDG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SEDG were disappointed as the stock returned -2.5% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
