Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 3D Systems Corporation (NYSE:DDD).
Is 3D Systems Corporation (NYSE:DDD) going to take off soon? The smart money is in an optimistic mood. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that DDD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the key hedge fund action encompassing 3D Systems Corporation (NYSE:DDD).
How have hedgies been trading 3D Systems Corporation (NYSE:DDD)?
At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DDD over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in 3D Systems Corporation (NYSE:DDD) was held by D E Shaw, which reported holding $19.1 million worth of stock at the end of September. It was followed by Coatue Management with a $7.8 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Concourse Capital Management allocated the biggest weight to 3D Systems Corporation (NYSE:DDD), around 0.4% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to DDD.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into 3D Systems Corporation (NYSE:DDD) headfirst. Renaissance Technologies initiated the most outsized position in 3D Systems Corporation (NYSE:DDD). Renaissance Technologies had $2.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now review hedge fund activity in other stocks similar to 3D Systems Corporation (NYSE:DDD). We will take a look at Astronics Corporation (NASDAQ:ATRO), Range Resources Corporation (NYSE:RRC), Noble Midstream Partners LP (NYSE:NBLX), and Office Depot Inc (NASDAQ:ODP). This group of stocks’ market caps are closest to DDD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATRO | 13 | 103363 | -5 |
| RRC | 26 | 263175 | -5 |
| NBLX | 4 | 2598 | 0 |
| ODP | 16 | 61845 | -4 |
| Average | 14.75 | 107745 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $39 million in DDD’s case. Range Resources Corporation (NYSE:RRC) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. 3D Systems Corporation (NYSE:DDD) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DDD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DDD investors were disappointed as the stock returned 4.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
