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Here is What Hedge Funds Think About Safeguard Scientifics, Inc (SFE)

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In this article you are going to find out whether hedge funds think Safeguard Scientifics, Inc (NYSE:SFE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Safeguard Scientifics, Inc (NYSE:SFE) a bargain? The smart money was turning less bullish. The number of bullish hedge fund bets fell by 4 in recent months. Safeguard Scientifics, Inc (NYSE:SFE) was in 6 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. Our calculations also showed that SFE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 10 hedge funds in our database with SFE holdings at the end of June.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments
John Rogers Ariel Investments

John Rogers of Ariel Investments

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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a gander at the fresh hedge fund action surrounding Safeguard Scientifics, Inc (NYSE:SFE).

How are hedge funds trading Safeguard Scientifics, Inc (NYSE:SFE)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the second quarter of 2020. On the other hand, there were a total of 10 hedge funds with a bullish position in SFE a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Almitas Capital was the largest shareholder of Safeguard Scientifics, Inc (NYSE:SFE), with a stake worth $3.5 million reported as of the end of September. Trailing Almitas Capital was Ariel Investments, which amassed a stake valued at $1.9 million. Renaissance Technologies, Prescott Group Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to Safeguard Scientifics, Inc (NYSE:SFE), around 4.78% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 0.5 percent of its 13F equity portfolio to SFE.

Judging by the fact that Safeguard Scientifics, Inc (NYSE:SFE) has witnessed falling interest from hedge fund managers, logic holds that there were a few hedgies that decided to sell off their entire stakes heading into Q4. Interestingly, Ken Griffin's Citadel Investment Group dumped the biggest investment of the 750 funds tracked by Insider Monkey, valued at about $0.2 million in stock. Gregg J. Powers's fund, Private Capital Management, also cut its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q4.

Let's also examine hedge fund activity in other stocks similar to Safeguard Scientifics, Inc (NYSE:SFE). We will take a look at Natural Gas Services Group, Inc. (NYSE:NGS), Mistras Group, Inc. (NYSE:MG), StoneMor Inc. (NYSE:STON), Community Bankers Trust Corp. (NASDAQ:ESXB), HC2 Holdings Inc (NYSE:HCHC), 9 Meters Biopharma, Inc. (NASDAQ:NMTR), and Ferroglobe PLC (NASDAQ:GSM). This group of stocks' market caps resemble SFE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGS,11,13926,1 MG,12,9811,1 STON,3,78903,-1 ESXB,4,8673,-2 HCHC,11,3880,-1 NMTR,5,21738,2 GSM,9,11679,-2 Average,7.9,21230,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.9 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $9 million in SFE's case. Mistras Group, Inc. (NYSE:MG) is the most popular stock in this table. On the other hand StoneMor Inc. (NYSE:STON) is the least popular one with only 3 bullish hedge fund positions. Safeguard Scientifics, Inc (NYSE:SFE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SFE is 31.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on SFE as the stock returned 21.2% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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