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Did Hedge Funds Make The Right Call On Bandwidth Inc. (BAND) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Bandwidth Inc. (NASDAQ:BAND) and determine whether hedge funds skillfully traded this stock.

Bandwidth Inc. (NASDAQ:BAND) has seen an increase in activity from the world’s largest hedge funds in recent months. BAND was in 33 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with BAND holdings at the end of the previous quarter. Our calculations also showed that BAND isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Platt Bluecrest Capital Management

Michael Platt of BlueCrest Capital Mgmt.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the key hedge fund action regarding Bandwidth Inc. (NASDAQ:BAND).

How are hedge funds trading Bandwidth Inc. (NASDAQ:BAND)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 83% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in BAND a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Alta Park Capital held the most valuable stake in Bandwidth Inc. (NASDAQ:BAND), which was worth $33 million at the end of the third quarter. On the second spot was Portolan Capital Management which amassed $23.8 million worth of shares. Point72 Asset Management, G2 Investment Partners Management, and Royce & Associates 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 Alta Park Capital allocated the biggest weight to Bandwidth Inc. (NASDAQ:BAND), around 12.26% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, setting aside 6.21 percent of its 13F equity portfolio to BAND.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. G2 Investment Partners Management, managed by Josh Goldberg, assembled the most valuable position in Bandwidth Inc. (NASDAQ:BAND). G2 Investment Partners Management had $18.8 million invested in the company at the end of the quarter. Jeff Osher’s No Street Capital also initiated a $9.8 million position during the quarter. The following funds were also among the new BAND investors: Richard Driehaus’s Driehaus Capital, Highbridge Capital Management, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bandwidth Inc. (NASDAQ:BAND) but similarly valued. These stocks are Cleveland-Cliffs Inc (NYSE:CLF), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), Phoenix Tree Holdings Limited (NYSE:DNK), and National Vision Holdings, Inc. (NASDAQ:EYE). This group of stocks’ market values are similar to BAND’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLF 23 77492 -8
SFBS 10 10012 1
DNK 3 21532 3
EYE 14 199114 -1
Average 12.5 77038 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $195 million in BAND’s case. Cleveland-Cliffs Inc (NYSE:CLF) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Bandwidth Inc. (NASDAQ:BAND) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BAND as the stock returned 88.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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