Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards SecureWorks Corp. (NASDAQ:SCWX).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a gander at the key hedge fund action surrounding SecureWorks Corp. (NASDAQ:SCWX).
Hedge fund activity in SecureWorks Corp. (NASDAQ:SCWX)
At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the second quarter of 2018. On the other hand, there were a total of 8 hedge funds with a bullish position in SCWX a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in SecureWorks Corp. (NASDAQ:SCWX) was held by Masters Capital Management, which reported holding $13.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $12 million position. Other investors bullish on the company included Renaissance Technologies, Prescott Group Capital Management, and Two Sigma Advisors.
Consequently, key money managers were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, established the largest position in SecureWorks Corp. (NASDAQ:SCWX). D E Shaw had $0.2 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $0.2 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to SecureWorks Corp. (NASDAQ:SCWX). We will take a look at Mirati Therapeutics, Inc. (NASDAQ:MRTX), Employers Holdings, Inc. (NYSE:EIG), G-III Apparel Group, Ltd. (NASDAQ:GIII), and Enanta Pharmaceuticals Inc (NASDAQ:ENTA). All of these stocks’ market caps are similar to SCWX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $249 million. That figure was $36 million in SCWX’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand G-III Apparel Group, Ltd. (NASDAQ:GIII) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SecureWorks Corp. (NASDAQ:SCWX) is even less popular than GIII. Hedge funds dodged a bullet by taking a bearish stance towards SCWX. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SCWX wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); SCWX investors were disappointed as the stock returned 12% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.