Hedge Funds Souring On Sierra Wireless, Inc. (SWIR)

In this article you are going to find out whether hedge funds think Sierra Wireless, Inc. (NASDAQ:SWIR) 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 Sierra Wireless, Inc. (NASDAQ:SWIR) going to take off soon? Prominent investors are taking a bearish view. The number of long hedge fund positions decreased by 3 recently. Our calculations also showed that SWIR 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). SWIR was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with SWIR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we’re going to take a peek at the key hedge fund action surrounding Sierra Wireless, Inc. (NASDAQ:SWIR).

Hedge fund activity in Sierra Wireless, Inc. (NASDAQ:SWIR)

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SWIR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Sierra Wireless, Inc. (NASDAQ:SWIR) was held by Trigran Investments, which reported holding $28.1 million worth of stock at the end of September. It was followed by Lion Point with a $12.2 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Roumell Asset Management. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to Sierra Wireless, Inc. (NASDAQ:SWIR), around 6.17% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, designating 3.33 percent of its 13F equity portfolio to SWIR.

Since Sierra Wireless, Inc. (NASDAQ:SWIR) has witnessed declining sentiment from the smart money, it’s easy to see that there were a few money managers that decided to sell off their full holdings last quarter. At the top of the heap, Jeffrey Bronchick’s Cove Street Capital dumped the largest stake of the 750 funds watched by Insider Monkey, totaling close to $0.6 million in stock. Minhua Zhang’s fund, Weld Capital Management, also said goodbye to its stock, about $0.4 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sierra Wireless, Inc. (NASDAQ:SWIR) but similarly valued. We will take a look at Old Second Bancorp Inc. (NASDAQ:OSBC), Noodles & Co (NASDAQ:NDLS), Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT), and Lindblad Expeditions Holdings Inc (NASDAQ:LIND). This group of stocks’ market valuations resemble SWIR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OSBC 11 16347 0
NDLS 14 52490 -2
ARCT 11 10368 0
LIND 16 54685 -3
Average 13 33473 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $53 million in SWIR’s case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand Old Second Bancorp Inc. (NASDAQ:OSBC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Sierra Wireless, Inc. (NASDAQ:SWIR) is even less popular than OSBC. Hedge funds clearly dropped the ball on SWIR 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on SWIR as the stock returned 59.9% so far in the second quarter and outperformed the market by an even larger margin.

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