The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider ScanSource, Inc. (NASDAQ:SCSC) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is SCSC a good stock to buy now? Investors who are in the know were in a bearish mood. The number of long hedge fund bets dropped by 3 in recent months. ScanSource, Inc. (NASDAQ:SCSC) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that SCSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 13 hedge funds in our database with SCSC positions at the end of the second 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 66 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.
Now we’re going to go over the new hedge fund action encompassing ScanSource, Inc. (NASDAQ:SCSC).
Do Hedge Funds Think SCSC Is A Good Stock To Buy Now?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCSC over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in ScanSource, Inc. (NASDAQ:SCSC). Pzena Investment Management has a $32.2 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $4.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Cliff Asness’s AQR Capital Management, D. E. Shaw’s D E Shaw and Renaissance Technologies. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to ScanSource, Inc. (NASDAQ:SCSC), around 0.2% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to SCSC.
Because ScanSource, Inc. (NASDAQ:SCSC) has experienced falling interest from hedge fund managers, we can see that there were a few funds who sold off their positions entirely last quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest investment of the 750 funds monitored by Insider Monkey, valued at close to $0.4 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ScanSource, Inc. (NASDAQ:SCSC) but similarly valued. We will take a look at Anika Therapeutics, Inc. (NASDAQ:ANIK), Lakeland Bancorp, Inc. (NASDAQ:LBAI), Origin Bancorp, Inc. (NASDAQ:OBNK), TCG BDC, Inc. (NASDAQ:CGBD), Neoleukin Therapeutics, Inc. (NASDAQ:NLTX), Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), and Extreme Networks, Inc (NASDAQ:EXTR). This group of stocks’ market valuations match SCSC’s market valuation.
|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 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $44 million in SCSC’s case. Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) is the most popular stock in this table. On the other hand Origin Bancorp, Inc. (NASDAQ:OBNK) is the least popular one with only 6 bullish hedge fund positions. ScanSource, Inc. (NASDAQ:SCSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SCSC is 35. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SCSC as the stock returned 42.1% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.