Hedge Funds Are Betting On Switch, Inc. (SWCH)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Switch, Inc. (NYSE:SWCH).

Switch, Inc. (NYSE:SWCH) investors should pay attention to an increase in enthusiasm from smart money recently. SWCH was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. There were 9 hedge funds in our database with SWCH positions at the end of the previous quarter. Our calculations also showed that swch isn’t among the 30 most popular stocks among hedge funds.

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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman Tiger Global Management

We’re going to analyze the recent hedge fund action surrounding Switch, Inc. (NYSE:SWCH).

What have hedge funds been doing with Switch, Inc. (NYSE:SWCH)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in SWCH heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SWCH Positions

According to Insider Monkey’s hedge fund database, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the most valuable position in Switch, Inc. (NYSE:SWCH). Sylebra Capital Management has a $72.7 million position in the stock, comprising 4.5% of its 13F portfolio. On Sylebra Capital Management’s heels is Tiger Global Management LLC, led by Chase Coleman, holding a $26.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish consist of Israel Englander’s Millennium Management, Malcolm Fairbairn’s Ascend Capital and Stuart J. Zimmer’s Zimmer Partners.

As industrywide interest jumped, key money managers have jumped into Switch, Inc. (NYSE:SWCH) headfirst. Ascend Capital, managed by Malcolm Fairbairn, assembled the biggest position in Switch, Inc. (NYSE:SWCH). Ascend Capital had $14.7 million invested in the company at the end of the quarter. Carl Goldsmith and Scott Klein’s Beach Point Capital Management also initiated a $5 million position during the quarter. The following funds were also among the new SWCH investors: Steve Cohen’s Point72 Asset Management, Sander Gerber’s Hudson Bay Capital Management, and Mike Vranos’s Ellington.

Let’s go over hedge fund activity in other stocks similar to Switch, Inc. (NYSE:SWCH). These stocks are Visteon Corp (NASDAQ:VC), argenx SE (NASDAQ:ARGX), DSW Inc. (NYSE:DSW), and First Interstate Bancsystem Inc (NASDAQ:FIBK). This group of stocks’ market values are closest to SWCH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VC 22 354194 -6
ARGX 34 612491 11
DSW 27 277884 4
FIBK 12 64678 1
Average 23.75 327312 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $161 million in SWCH’s case. argenx SE (NASDAQ:ARGX) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Switch, Inc. (NYSE:SWCH) is even less popular than FIBK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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