Were Hedge Funds Right About Solaredge Technologies Inc (SEDG)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Solaredge Technologies Inc (NASDAQ:SEDG) and determine whether hedge funds had an edge regarding this stock.

Solaredge Technologies Inc (NASDAQ:SEDG) was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. SEDG shareholders have witnessed a decrease in hedge fund interest recently. There were 28 hedge funds in our database with SEDG holdings at the end of the previous quarter. Our calculations also showed that SEDG 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to view the latest hedge fund action regarding Solaredge Technologies Inc (NASDAQ:SEDG).

What have hedge funds been doing with Solaredge Technologies Inc (NASDAQ:SEDG)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in SEDG a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in Solaredge Technologies Inc (NASDAQ:SEDG). D E Shaw has a $54.8 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $51.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Ian Simm’s Impax Asset Management, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Solaredge Technologies Inc (NASDAQ:SEDG), around 2.03% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, dishing out 1.1 percent of its 13F equity portfolio to SEDG.

Since Solaredge Technologies Inc (NASDAQ:SEDG) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers that decided to sell off their positions entirely by the end of the first quarter. Intriguingly, Richard Mashaal’s Rima Senvest Management dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $79.2 million in stock. Roy Vermus and Shlomi Bracha’s fund, Noked Capital, also sold off its stock, about $41.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Solaredge Technologies Inc (NASDAQ:SEDG). These stocks are LogMeIn Inc (NASDAQ:LOGM), Anaplan, Inc. (NYSE:PLAN), Xerox Holdings Corporation (NYSE:XRX), and Autoliv Inc. (NYSE:ALV). This group of stocks’ market valuations are closest to SEDG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOGM 28 759486 -3
PLAN 51 1608189 -6
XRX 41 872768 2
ALV 15 366576 -6
Average 33.75 901755 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $902 million. That figure was $264 million in SEDG’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 15 bullish hedge fund positions. Solaredge Technologies Inc (NASDAQ:SEDG) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SEDG as the stock returned 69.5% during the second quarter and outperformed the market by an even larger margin.

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