Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in SecureWorks Corp. (NASDAQ:SCWX)? The smart money sentiment can provide an answer to this question.
Is SCWX a good stock to buy now? SecureWorks Corp. (NASDAQ:SCWX) has experienced a decrease in enthusiasm from smart money of late. SecureWorks Corp. (NASDAQ:SCWX) was in 12 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that SCWX 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are perceived as unimportant, old investment vehicles of the past. While there are more than 8000 funds in operation at the moment, Our researchers look at the aristocrats of this group, approximately 850 funds. These investment experts control the majority of the smart money’s total asset base, and by following their best stock picks, Insider Monkey has spotted many investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we’re going to view the latest hedge fund action regarding SecureWorks Corp. (NASDAQ:SCWX).
Do Hedge Funds Think SCWX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in SCWX over the last 21 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of SecureWorks Corp. (NASDAQ:SCWX), with a stake worth $8.2 million reported as of the end of September. Trailing Royce & Associates was AQR Capital Management, which amassed a stake valued at $1.8 million. Two Sigma Advisors, Harvey Partners, and Citadel Investment Group 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 Harvey Partners allocated the biggest weight to SecureWorks Corp. (NASDAQ:SCWX), around 0.96% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to SCWX.
Because SecureWorks Corp. (NASDAQ:SCWX) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds who were dropping their full holdings by the end of the third quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital sold off the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $0.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $0.2 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SecureWorks Corp. (NASDAQ:SCWX) but similarly valued. We will take a look at Hope Bancorp, Inc. (NASDAQ:HOPE), The E.W. Scripps Company (NYSE:SSP), Heska Corp (NASDAQ:HSKA), e.l.f. Beauty, Inc. (NYSE:ELF), Replimune Group, Inc. (NASDAQ:REPL), Arvinas, Inc. (NASDAQ:ARVN), and BioLife Solutions, Inc. (NASDAQ:BLFS). This group of stocks’ market caps match 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 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $14 million in SCWX’s case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand BioLife Solutions, Inc. (NASDAQ:BLFS) 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 BLFS. Our overall hedge fund sentiment score for SCWX is 29.7. 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 SCWX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 SCWX as the stock returned 11.6% since Q3 (through December 8th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.