Were Hedge Funds Right About Flocking Into Switch, Inc. (SWCH) ?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Switch, Inc. (NYSE:SWCH) makes for a good investment right now.

Switch, Inc. (NYSE:SWCH) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. SWCH was in 14 hedge funds’ portfolios at the end of December. There were 12 hedge funds in our database with SWCH holdings at the end of the previous quarter. Our calculations also showed that SWCH isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

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We’re going to view the new hedge fund action encompassing Switch, Inc. (NYSE:SWCH).

What have hedge funds been doing with Switch, Inc. (NYSE:SWCH)?

Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2018. On the other hand, there were a total of 11 hedge funds with a bullish position in SWCH a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).


More specifically, Sylebra Capital Management was the largest shareholder of Switch, Inc. (NYSE:SWCH), with a stake worth $55.7 million reported as of the end of December. Trailing Sylebra Capital Management was Tiger Global Management LLC, which amassed a stake valued at $17.3 million. Millennium Management, Rima Senvest Management, and Echo Street Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Rima Senvest Management, managed by Richard Mashaal, established the most outsized position in Switch, Inc. (NYSE:SWCH). Rima Senvest Management had $8.2 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $6.3 million investment in the stock during the quarter. The other funds with brand new SWCH positions are Jim Simons’s Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors, and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks similar to Switch, Inc. (NYSE:SWCH). We will take a look at Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), EnLink Midstream LLC (NYSE:ENLC), IAMGOLD Corporation (NYSE:IAG), and 8×8, Inc. (NYSE:EGHT). All of these stocks’ market caps are closest to SWCH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLAY 22 230987 0
ENLC 15 37723 2
IAG 14 174230 2
EGHT 17 195809 -1
Average 17 159687 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $107 million in SWCH’s case. Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is the most popular stock in this table. On the other hand IAMGOLD Corporation (NYSE:IAG) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Switch, Inc. (NYSE:SWCH) is even less popular than IAG. Hedge funds clearly dropped the ball on SWCH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on SWCH as the stock returned 54.4% and outperformed the market by an even larger margin.

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