The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded SecureWorks Corp. (NASDAQ:SCWX) and determine whether the smart money was really smart about this stock.
SecureWorks Corp. (NASDAQ:SCWX) investors should pay attention to a decrease in support from the world's most elite money managers recently. SCWX was in 11 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with SCWX holdings at the end of the previous quarter. Our calculations also showed that SCWX 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.
[caption id="attachment_746893" align="aligncenter" width="400"] Paul Marshall of Marshall Wace[/caption]
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. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. 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. With all of this in mind let's go over the recent hedge fund action encompassing SecureWorks Corp. (NASDAQ:SCWX).
What have hedge funds been doing with SecureWorks Corp. (NASDAQ:SCWX)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCWX over the last 18 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Chuck Royce's Royce & Associates has the largest position in SecureWorks Corp. (NASDAQ:SCWX), worth close to $6.6 million, accounting for 0.1% of its total 13F portfolio. On Royce & Associates's heels is Renaissance Technologies, holding a $1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Paul Marshall and Ian Wace's Marshall Wace LLP and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to SecureWorks Corp. (NASDAQ:SCWX), around 0.09% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to SCWX.
Since SecureWorks Corp. (NASDAQ:SCWX) has experienced falling interest from the smart money, it's safe to say that there were a few money managers that elected to cut their full holdings last quarter. Intriguingly, Mike Masters's Masters Capital Management cut the biggest position of the 750 funds monitored by Insider Monkey, totaling about $4.8 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund cut about $2.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to SecureWorks Corp. (NASDAQ:SCWX). These stocks are Winnebago Industries, Inc. (NYSE:WGO), CareDx, Inc. (NASDAQ:CDNA), Cardlytics, Inc. (NASDAQ:CDLX), and Standard Motor Products, Inc. (NYSE:SMP). This group of stocks' market valuations are similar to SCWX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WGO,19,131961,-4 CDNA,17,144703,-8 CDLX,26,292046,0 SMP,9,68050,-1 Average,17.75,159190,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $12 million in SCWX's case. Cardlytics, Inc. (NASDAQ:CDLX) is the most popular stock in this table. On the other hand Standard Motor Products, Inc. (NYSE:SMP) is the least popular one with only 9 bullish hedge fund positions. SecureWorks Corp. (NASDAQ:SCWX) 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 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 surpassed the market by 15.5 percentage points. Unfortunately SCWX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SCWX investors were disappointed as the stock returned -0.7% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.