Should You Avoid Switchback Energy Acquisition Corporation (SBE)?

In this article we will check out the progression of hedge fund sentiment towards Switchback Energy Acquisition Corporation (NYSE:SBE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Switchback Energy Acquisition Corporation (NYSE:SBE) investors should pay attention to a decrease in hedge fund sentiment of late. SBE was in 15 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with SBE holdings at the end of the previous quarter. Our calculations also showed that SBE 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).

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Jeffrey Tannenbaum of Fir Tree

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. 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 let’s analyze the latest hedge fund action surrounding Switchback Energy Acquisition Corporation (NYSE:SBE).

What does smart money think about Switchback Energy Acquisition Corporation (NYSE:SBE)?

At Q1’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SBE over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Adage Capital Management was the largest shareholder of Switchback Energy Acquisition Corporation (NYSE:SBE), with a stake worth $23.2 million reported as of the end of September. Trailing Adage Capital Management was Glazer Capital, which amassed a stake valued at $19.4 million. Glazer Capital, HBK Investments, and Magnetar Capital 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 Yaupon Capital allocated the biggest weight to Switchback Energy Acquisition Corporation (NYSE:SBE), around 7.7% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, setting aside 1.29 percent of its 13F equity portfolio to SBE.

Since Switchback Energy Acquisition Corporation (NYSE:SBE) has experienced declining sentiment from the smart money, we can see that there is a sect of money managers who sold off their full holdings in the first quarter. Intriguingly, Simon Sadler’s Segantii Capital sold off the largest stake of the 750 funds monitored by Insider Monkey, worth an estimated $15 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt., also sold off its stock, about $3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Switchback Energy Acquisition Corporation (NYSE:SBE) but similarly valued. These stocks are Yiren Digital Ltd. (NYSE:YRD), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), Flushing Financial Corporation (NASDAQ:FFIC), and Cue Biopharma, Inc. (NASDAQ:CUE). This group of stocks’ market caps are similar to SBE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YRD 2 2472 -3
CRBP 10 47058 2
FFIC 9 29736 0
CUE 14 111721 3
Average 8.75 47747 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $96 million in SBE’s case. Cue Biopharma, Inc. (NASDAQ:CUE) is the most popular stock in this table. On the other hand Yiren Digital Ltd. (NYSE:YRD) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Switchback Energy Acquisition Corporation (NYSE:SBE) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately SBE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SBE were disappointed as the stock returned 3.2% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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