Were Hedge Funds Right About Dumping Synchronoss Technologies (SNCR)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Synchronoss Technologies, Inc. (NASDAQ:SNCR) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Synchronoss Technologies, Inc. (NASDAQ:SNCR) the right investment to pursue these days? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions were cut by 4 in recent months. Our calculations also showed that SNCR isn’t among the 30 most popular stocks among hedge funds (see the video below). SNCR was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with SNCR positions 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.

John Overdeck of Two Sigma

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a peek at the new hedge fund action encompassing Synchronoss Technologies, Inc. (NASDAQ:SNCR).

How have hedgies been trading Synchronoss Technologies, Inc. (NASDAQ:SNCR)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNCR over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SNCR Positions

Among these funds, Archon Capital Management held the most valuable stake in Synchronoss Technologies, Inc. (NASDAQ:SNCR), which was worth $20.8 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $6.9 million worth of shares. Moreover, Arrowstreet Capital, Emancipation Capital, and Two Sigma Advisors were also bullish on Synchronoss Technologies, Inc. (NASDAQ:SNCR), allocating a large percentage of their portfolios to this stock.

Since Synchronoss Technologies, Inc. (NASDAQ:SNCR) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedgies that elected to cut their entire stakes in the second quarter. Interestingly, Charles Frumberg’s Emancipation Capital dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising an estimated $2.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dumped its stock, about $0.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Synchronoss Technologies, Inc. (NASDAQ:SNCR) but similarly valued. These stocks are EverBank Financial Corp (NYSE:EVER), Merus N.V. (NASDAQ:MRUS), Bridgewater Bancshares, Inc. (NASDAQ:BWB), and Hibbett Sports, Inc. (NASDAQ:HIBB). This group of stocks’ market valuations are closest to SNCR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVER 11 25200 1
MRUS 7 108466 1
BWB 6 29062 -1
HIBB 15 76793 0
Average 9.75 59880 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $35 million in SNCR’s case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Bridgewater Bancshares, Inc. (NASDAQ:BWB) is the least popular one with only 6 bullish hedge fund positions. Synchronoss Technologies, Inc. (NASDAQ:SNCR) 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 SNCR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SNCR investors were disappointed as the stock returned -31.7% 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.