Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Sierra Wireless, Inc. (NASDAQ:SWIR).
Sierra Wireless, Inc. (NASDAQ:SWIR) was in 12 hedge funds' portfolios at the end of September. SWIR investors should be aware of an increase in hedge fund interest of late. There were 10 hedge funds in our database with SWIR holdings at the end of the previous quarter. Our calculations also showed that SWIR 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' 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.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to check out the fresh hedge fund action regarding Sierra Wireless, Inc. (NASDAQ:SWIR).
What does smart money think about Sierra Wireless, Inc. (NASDAQ:SWIR)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in SWIR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Sierra Wireless, Inc. (NASDAQ:SWIR) was held by Trigran Investments, which reported holding $38.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $10.8 million position. Other investors bullish on the company included Arrowstreet Capital, Roumell Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to Sierra Wireless, Inc. (NASDAQ:SWIR), around 7.26% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, setting aside 4.13 percent of its 13F equity portfolio to SWIR.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the most valuable position in Sierra Wireless, Inc. (NASDAQ:SWIR). Millennium Management had $1.4 million invested in the company at the end of the quarter. John Thiessen's Vertex One Asset Management also initiated a $0.9 million position during the quarter. The only other fund with a brand new SWIR position is Minhua Zhang's Weld Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Sierra Wireless, Inc. (NASDAQ:SWIR). We will take a look at Regalwood Global Energy Ltd. (NYSE:RWGE), Capital Southwest Corporation (NASDAQ:CSWC), Oppenheimer Holdings Inc. (NYSE:OPY), and Greenlight Capital Re, Ltd. (NASDAQ:GLRE). This group of stocks' market valuations are similar to SWIR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RWGE,14,128064,0 CSWC,9,40496,-1 OPY,9,33323,0 GLRE,12,11627,4 Average,11,53378,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $64 million in SWIR's case. Regalwood Global Energy Ltd. (NYSE:RWGE) is the most popular stock in this table. On the other hand Capital Southwest Corporation (NASDAQ:CSWC) is the least popular one with only 9 bullish hedge fund positions. Sierra Wireless, Inc. (NASDAQ:SWIR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 SWIR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SWIR were disappointed as the stock returned -17.7% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.