It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Sequans Communications SA (NYSE:SQNS).
Sequans Communications SA (NYSE:SQNS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of September. 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 Idera Pharmaceuticals Inc (NASDAQ:IDRA), PolarityTE, Inc. (NASDAQ:PTE), and Servicesource International Inc (NASDAQ:SREV) to gather more data points. Our calculations also showed that SQNS 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’ 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 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 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the latest hedge fund action encompassing Sequans Communications SA (NYSE:SQNS).
What have hedge funds been doing with Sequans Communications SA (NYSE:SQNS)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. By comparison, 1 hedge funds held shares or bullish call options in SQNS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Brett Hendrickson’s Nokomis Capital has the number one position in Sequans Communications SA (NYSE:SQNS), worth close to $6.7 million, amounting to 1.4% of its total 13F portfolio. The second largest stake is held by Divisar Capital, managed by Steven Baughman, which holds a $6.3 million position; 2.1% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions contain Jonathan Guo’s Yiheng Capital, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Sequans Communications SA (NYSE:SQNS), around 2.08% of its 13F portfolio. Nokomis Capital is also relatively very bullish on the stock, designating 1.44 percent of its 13F equity portfolio to SQNS.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sequans Communications SA (NYSE:SQNS) but similarly valued. These stocks are Idera Pharmaceuticals Inc (NASDAQ:IDRA), PolarityTE, Inc. (NASDAQ:PTE), Servicesource International Inc (NASDAQ:SREV), and Gulf Island Fabrication, Inc. (NASDAQ:GIFI). This group of stocks’ market caps are similar to SQNS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IDRA | 8 | 18034 | 0 |
| PTE | 11 | 14461 | 1 |
| SREV | 13 | 23539 | -1 |
| GIFI | 11 | 14660 | 2 |
| Average | 10.75 | 17674 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $15 million in SQNS’s case. Servicesource International Inc (NASDAQ:SREV) is the most popular stock in this table. On the other hand Idera Pharmaceuticals Inc (NASDAQ:IDRA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Sequans Communications SA (NYSE:SQNS) is even less popular than IDRA. Hedge funds dodged a bullet by taking a bearish stance towards SQNS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SQNS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SQNS investors were disappointed as the stock returned -11.2% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
