Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Switch, Inc. (NYSE:SWCH).
Switch, Inc. (NYSE:SWCH) investors should be aware of an increase in hedge fund sentiment in recent months. Our calculations also showed that SWCH isn't among the 30 most popular stocks among hedge funds.
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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a glance at the new hedge fund action encompassing Switch, Inc. (NYSE:SWCH).
How have hedgies been trading Switch, Inc. (NYSE:SWCH)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in SWCH a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Sylebra Capital Management was the largest shareholder of Switch, Inc. (NYSE:SWCH), with a stake worth $86.8 million reported as of the end of March. Trailing Sylebra Capital Management was Tiger Global Management, which amassed a stake valued at $25.5 million. Millennium Management, Renaissance Technologies, and Rima Senvest Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, assembled the most outsized position in Switch, Inc. (NYSE:SWCH). Driehaus Capital had $2.2 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Chuck Royce's Royce & Associates, Michael Platt and William Reeves's BlueCrest Capital Mgmt., and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's check out hedge fund activity in other stocks similar to Switch, Inc. (NYSE:SWCH). We will take a look at John Wiley & Sons Inc (NYSE:JW), Kosmos Energy Ltd (NYSE:KOS), International Bancshares Corp (NASDAQ:IBOC), and Meredith Corporation (NYSE:MDP). This group of stocks' market values match SWCH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JW,17,77690,0 KOS,18,118384,4 IBOC,14,151399,-5 MDP,11,294686,-1 Average,15,160540,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $176 million in SWCH's case. Kosmos Energy Ltd (NYSE:KOS) is the most popular stock in this table. On the other hand Meredith Corporation (NYSE:MDP) is the least popular one with only 11 bullish hedge fund positions. Switch, Inc. (NYSE:SWCH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on SWCH as the stock returned 31.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.