The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Iridium Communications Inc. (NASDAQ:IRDM) and determine whether the smart money was really smart about this stock.
Iridium Communications Inc. (NASDAQ:IRDM) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. IRDM shareholders have witnessed a decrease in support from the world's most elite money managers recently. There were 20 hedge funds in our database with IRDM holdings at the end of March. Our calculations also showed that IRDM 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Mario Gabelli of GAMCO Investors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 let's take a glance at the latest hedge fund action regarding Iridium Communications Inc. (NASDAQ:IRDM).
How have hedgies been trading Iridium Communications Inc. (NASDAQ:IRDM)?
At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in IRDM a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Iridium Communications Inc. (NASDAQ:IRDM) was held by Select Equity Group, which reported holding $65.6 million worth of stock at the end of September. It was followed by Silver Heights Capital Management with a $62.5 million position. Other investors bullish on the company included Brahman Capital, Renaissance Technologies, and GAMCO Investors. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to Iridium Communications Inc. (NASDAQ:IRDM), around 30.41% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, dishing out 2.11 percent of its 13F equity portfolio to IRDM.
Due to the fact that Iridium Communications Inc. (NASDAQ:IRDM) has faced declining sentiment from the smart money, logic holds that there lies a certain "tier" of hedgies who sold off their positions entirely last quarter. Interestingly, D. E. Shaw's D E Shaw cut the biggest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $1.5 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund said goodbye to about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Iridium Communications Inc. (NASDAQ:IRDM). We will take a look at World Wrestling Entertainment, Inc. (NYSE:WWE), W.R. Grace & Co. (NYSE:GRA), Nextera Energy Partners LP (NYSE:NEP), Envista Holdings Corporation (NYSE:NVST), RBC Bearings Incorporated (NASDAQ:ROLL), Mattel, Inc. (NASDAQ:MAT), and Cosan Limited (NYSE:CZZ). All of these stocks' market caps are similar to IRDM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WWE,29,390419,-2 GRA,39,1296937,4 NEP,21,125356,0 NVST,21,395641,-1 ROLL,17,61588,8 MAT,25,595357,8 CZZ,14,160277,-1 Average,23.7,432225,2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $432 million. That figure was $224 million in IRDM's case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 14 bullish hedge fund positions. Iridium Communications Inc. (NASDAQ:IRDM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IRDM is 42.5. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately IRDM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IRDM investors were disappointed as the stock returned 0.6% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.