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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Smith Micro Software, Inc. (NASDAQ:SMSI).
Smith Micro Software, Inc. (NASDAQ:SMSI) shareholders have witnessed an increase in activity from the world's largest hedge funds of late. Our calculations also showed that SMSI 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
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Ken Griffin of Citadel Investment Group[/caption]
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. Keeping this in mind let's take a look at the fresh hedge fund action encompassing Smith Micro Software, Inc. (NASDAQ:SMSI).
What have hedge funds been doing with Smith Micro Software, Inc. (NASDAQ:SMSI)?
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in SMSI a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, G2 Investment Partners Management, managed by Josh Goldberg, holds the number one position in Smith Micro Software, Inc. (NASDAQ:SMSI). G2 Investment Partners Management has a $1.9 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $1.3 million call position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions include Israel Englander's Millennium Management, Renaissance Technologies and Michael Gelband's ExodusPoint Capital. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Smith Micro Software, Inc. (NASDAQ:SMSI), around 0.53% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, dishing out 0.0027 percent of its 13F equity portfolio to SMSI.
As aggregate interest increased, key money managers were leading the bulls' herd. G2 Investment Partners Management, managed by Josh Goldberg, initiated the largest position in Smith Micro Software, Inc. (NASDAQ:SMSI). G2 Investment Partners Management had $1.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $1.2 million position during the quarter. The only other fund with a brand new SMSI position is Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Smith Micro Software, Inc. (NASDAQ:SMSI) but similarly valued. These stocks are GSI Technology, Inc. (NASDAQ:GSIT), Arlington Asset Investment Corp (NYSE:AI), Senseonics Holdings, Inc. (NYSE:SENS), and RedHill Biopharma Ltd (NASDAQ:RDHL). This group of stocks' market valuations are similar to SMSI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSIT,6,17724,2 AI,7,20208,0 SENS,9,6292,0 RDHL,2,24590,0 Average,6,17204,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $4 million in SMSI's case. Senseonics Holdings, Inc. (NYSE:SENS) is the most popular stock in this table. On the other hand RedHill Biopharma Ltd (NASDAQ:RDHL) is the least popular one with only 2 bullish hedge fund positions. Smith Micro Software, Inc. (NASDAQ:SMSI) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 SMSI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SMSI investors were disappointed as the stock returned -13.2% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.