We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Solaredge Technologies Inc (NASDAQ:SEDG) and determine whether hedge funds skillfully traded this stock.
Is Solaredge Technologies Inc (NASDAQ:SEDG) ready to rally soon? The smart money was becoming less confident. The number of long hedge fund bets fell by 2 in recent months. Solaredge Technologies Inc (NASDAQ:SEDG) was in 25 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that SEDG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 27 hedge funds in our database with SEDG holdings at the end of March. Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to check out the recent hedge fund action encompassing Solaredge Technologies Inc (NASDAQ:SEDG).
How have hedgies been trading Solaredge Technologies Inc (NASDAQ:SEDG)?
At second quarter's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in SEDG a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the largest position in Solaredge Technologies Inc (NASDAQ:SEDG). Sylebra Capital Management has a $116.1 million position in the stock, comprising 3.6% of its 13F portfolio. Coming in second is Ian Simm of Impax Asset Management, with a $70.2 million position; 0.7% of its 13F portfolio is allocated to the stock. Other peers that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Brian Ashford-Russell and Tim Woolley's Polar Capital and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Noked Capital allocated the biggest weight to Solaredge Technologies Inc (NASDAQ:SEDG), around 17.41% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, setting aside 3.62 percent of its 13F equity portfolio to SEDG.
Seeing as Solaredge Technologies Inc (NASDAQ:SEDG) has experienced falling interest from hedge fund managers, it's safe to say that there lies a certain "tier" of hedge funds who were dropping their entire stakes last quarter. Interestingly, Jonathan Barrett and Paul Segal's Luminus Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, comprising about $5.4 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also cut its stock, about $2.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Solaredge Technologies Inc (NASDAQ:SEDG). We will take a look at Sociedad Quimica y Minera (NYSE:SQM), Westlake Chemical Corporation (NYSE:WLK), Cabot Oil & Gas Corporation (NYSE:COG), Algonquin Power & Utilities Corp. (NYSE:AQN), Watsco Inc (NYSE:WSO), Hubbell Incorporated (NYSE:HUBB), and Kilroy Realty Corp (NYSE:KRC). This group of stocks' market caps resemble SEDG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SQM,14,91324,4 WLK,29,165262,9 COG,31,237488,-6 AQN,13,283894,-1 WSO,21,229597,1 HUBB,29,335298,14 KRC,20,411400,0 Average,22.4,250609,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $436 million in SEDG's case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 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. Our overall hedge fund sentiment score for SEDG is 63.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on SEDG as the stock returned 44.8% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.