Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Switch, Inc. (NYSE:SWCH).
Switch, Inc. (NYSE:SWCH) investors should be aware of a decrease in hedge fund sentiment recently. Our calculations also showed that SWCH isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 check out the key hedge fund action encompassing Switch, Inc. (NYSE:SWCH).
What does smart money think about Switch, Inc. (NYSE:SWCH)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SWCH over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the largest position in Switch, Inc. (NYSE:SWCH), worth close to $99.9 million, accounting for 4.6% of its total 13F portfolio. On Sylebra Capital Management’s heels is Renaissance Technologies, with a $36.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Chase Coleman’s Tiger Global Management LLC, Richard Mashaal’s Rima Senvest Management and Israel Englander’s Millennium Management.
Since Switch, Inc. (NYSE:SWCH) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Richard Driehaus’s Driehaus Capital sold off the biggest position of the 750 funds followed by Insider Monkey, valued at about $2.2 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its call options, about $1.4 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Switch, Inc. (NYSE:SWCH) but similarly valued. These stocks are Louisiana-Pacific Corporation (NYSE:LPX), Moog Inc (NYSE:MOG), BankUnited, Inc. (NYSE:BKU), and Cantel Medical Corp. (NYSE:CMD). This group of stocks’ market values resemble SWCH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LPX | 27 | 393287 | -1 |
| MOG | 18 | 118775 | 1 |
| BKU | 19 | 480363 | 0 |
| CMD | 11 | 146585 | -7 |
| Average | 18.75 | 284753 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $221 million in SWCH’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Cantel Medical Corp. (NYSE:CMD) is the least popular one with only 11 bullish hedge fund positions. Switch, Inc. (NYSE:SWCH) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SWCH as the stock returned 19.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
