Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Extreme Networks, Inc (NASDAQ:EXTR) and see how the stock is affected by the recent hedge fund activity.
Is Extreme Networks, Inc (NASDAQ:EXTR) worth your attention right now? The smart money is in a bearish mood. The number of long hedge fund bets retreated by 1 lately. Our calculations also showed that EXTR isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to view the recent hedge fund action surrounding Extreme Networks, Inc (NASDAQ:EXTR).
Hedge fund activity in Extreme Networks, Inc (NASDAQ:EXTR)
Heading into the third quarter of 2019, 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, 21 hedge funds held shares or bullish call options in EXTR a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Extreme Networks, Inc (NASDAQ:EXTR), which was worth $30.8 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $22.7 million worth of shares. Moreover, Millennium Management, AQR Capital Management, and Citadel Investment Group were also bullish on Extreme Networks, Inc (NASDAQ:EXTR), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Extreme Networks, Inc (NASDAQ:EXTR) has faced a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of funds who were dropping their entire stakes last quarter. At the top of the heap, David Costen Haley's HBK Investments said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, valued at about $1.4 million in stock, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors was right behind this move, as the fund cut about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Extreme Networks, Inc (NASDAQ:EXTR). These stocks are QuinStreet Inc (NASDAQ:QNST), Construction Partners, Inc. (NASDAQ:ROAD), Domo Inc. (NASDAQ:DOMO), and Oaktree Specialty Lending Corporation (NASDAQ:OCSL). This group of stocks' market caps are closest to EXTR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QNST,21,218559,-4 ROAD,6,14752,-2 DOMO,14,129781,-7 OCSL,17,80282,-2 Average,14.5,110844,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $100 million in EXTR's case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand Construction Partners, Inc. (NASDAQ:ROAD) is the least popular one with only 6 bullish hedge fund positions. Extreme Networks, Inc (NASDAQ:EXTR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on EXTR as the stock returned 12.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.