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Were Hedge Funds Right About Dumping Sierra Wireless, Inc. (SWIR)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sierra Wireless, Inc. (NASDAQ:SWIR).

Is Sierra Wireless, Inc. (NASDAQ:SWIR) a cheap investment right now? Money managers are taking a bearish view. The number of long hedge fund positions fell by 2 in recent months. Our calculations also showed that SWIR isn’t among the 30 most popular stocks among hedge funds (see the video below). SWIR was in 10 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with SWIR holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

SWIR_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the new hedge fund action encompassing Sierra Wireless, Inc. (NASDAQ:SWIR).

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

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SWIR over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

John Overdeck of Two Sigma

According to Insider Monkey’s hedge fund database, Trigran Investments, managed by Douglas T. Granat, holds the biggest position in Sierra Wireless, Inc. (NASDAQ:SWIR). Trigran Investments has a $43.4 million position in the stock, comprising 7.2% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $9.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise Renaissance Technologies, Jim Roumell’s Roumell Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Because Sierra Wireless, Inc. (NASDAQ:SWIR) has faced bearish sentiment from hedge fund managers, we can see that there exists a select few funds who were dropping their full holdings heading into Q3. Intriguingly, Israel Englander’s Millennium Management dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $1 million in stock, and Jeffrey Bronchick’s Cove Street Capital was right behind this move, as the fund cut about $0.6 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Sierra Wireless, Inc. (NASDAQ:SWIR). These stocks are Replimune Group, Inc. (NASDAQ:REPL), Sentinel Energy Services Inc. (NASDAQ:STNL), Flexion Therapeutics Inc (NASDAQ:FLXN), and BioSpecifics Technologies Corp. (NASDAQ:BSTC). This group of stocks’ market caps are closest to SWIR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REPL 6 74225 1
STNL 15 137785 0
FLXN 15 112021 0
BSTC 11 55210 -1
Average 11.75 94810 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $67 million in SWIR’s case. Sentinel Energy Services Inc. (NASDAQ:STNL) is the most popular stock in this table. On the other hand Replimune Group, Inc. (NASDAQ:REPL) is the least popular one with only 6 bullish hedge fund positions. Sierra Wireless, Inc. (NASDAQ:SWIR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SWIR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SWIR investors were disappointed as the stock returned -11.4% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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