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Hedge Funds Dipping Their Toes Into SolarWinds Corporation (SWI)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought SolarWinds Corporation (NYSE:SWI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

SolarWinds Corporation (NYSE:SWI) has seen an increase in hedge fund interest of late. SolarWinds Corporation (NYSE:SWI) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. There were 14 hedge funds in our database with SWI positions at the end of the first quarter. Our calculations also showed that SWI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

At the moment there are a multitude of methods market participants have at their disposal to analyze their holdings. A duo of the most under-the-radar methods are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can beat the S&P 500 by a solid margin (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the key hedge fund action regarding SolarWinds Corporation (NYSE:SWI).

How are hedge funds trading SolarWinds Corporation (NYSE:SWI)?

At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in SWI a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is SWI A Good Stock To Buy?

More specifically, Silver Lake Partners was the largest shareholder of SolarWinds Corporation (NYSE:SWI), with a stake worth $2299.2 million reported as of the end of September. Trailing Silver Lake Partners was Sunriver Management, which amassed a stake valued at $40.3 million. Millennium Management, AQR Capital Management, and Tiger Global Management LLC 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 Silver Lake Partners allocated the biggest weight to SolarWinds Corporation (NYSE:SWI), around 75.69% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, setting aside 6.36 percent of its 13F equity portfolio to SWI.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Renaissance Technologies, initiated the biggest position in SolarWinds Corporation (NYSE:SWI). Renaissance Technologies had $2.6 million invested in the company at the end of the quarter. Mika Toikka’s AlphaCrest Capital Management also made a $0.6 million investment in the stock during the quarter. The other funds with brand new SWI positions are Qing Li’s Sciencast Management, Bruce Kovner’s Caxton Associates LP, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SolarWinds Corporation (NYSE:SWI) but similarly valued. We will take a look at Casey’s General Stores, Inc. (NASDAQ:CASY), LHC Group, Inc. (NASDAQ:LHCG), Prosperity Bancshares, Inc. (NYSE:PB), Legend Biotech Corporation (NASDAQ:LEGN), Deckers Outdoor Corp (NASDAQ:DECK), Steel Dynamics, Inc. (NASDAQ:STLD), and CACI International Inc (NYSE:CACI). This group of stocks’ market valuations are closest to SWI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CASY 23 152316 0
LHCG 30 159342 3
PB 27 109165 11
LEGN 28 551006 28
DECK 47 857767 16
STLD 30 370392 3
CACI 34 395916 9
Average 31.3 370843 10

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $371 million. That figure was $2365 million in SWI’s case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand Casey’s General Stores, Inc. (NASDAQ:CASY) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks SolarWinds Corporation (NYSE:SWI) is even less popular than CASY. Our overall hedge fund sentiment score for SWI is 35.9. 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. Hedge funds clearly dropped the ball on SWI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on SWI as the stock returned 15.1% during the third quarter and outperformed the market by an even larger margin.

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