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 ANSYS, Inc. (NASDAQ:ANSS) and determine whether hedge funds had an edge regarding this stock.
Is ANSYS, Inc. (NASDAQ:ANSS) undervalued? Money managers were taking a bearish view. The number of bullish hedge fund bets fell by 2 in recent months. Our calculations also showed that ANSS 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 let’s take a peek at the latest hedge fund action regarding ANSYS, Inc. (NASDAQ:ANSS).
What does smart money think about ANSYS, Inc. (NASDAQ:ANSS)?
Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ANSS over the last 18 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.
Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the number one position in ANSYS, Inc. (NASDAQ:ANSS). Select Equity Group has a $206.2 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Nicolai Tangen of Ako Capital, with a $188.5 million position; the fund has 4% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Panayotis Takis Sparaggis’s Alkeon Capital Management, Charles Akre’s Akre Capital Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to ANSYS, Inc. (NASDAQ:ANSS), around 7.22% of its 13F portfolio. Intermede Investment Partners is also relatively very bullish on the stock, designating 4.4 percent of its 13F equity portfolio to ANSS.
Because ANSYS, Inc. (NASDAQ:ANSS) has faced declining sentiment from the smart money, logic holds that there is a sect of money managers that elected to cut their full holdings heading into Q4. It’s worth mentioning that Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors cut the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $19.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $9.8 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ANSYS, Inc. (NASDAQ:ANSS) but similarly valued. These stocks are KKR & Co Inc. (NYSE:KKR), Edison International (NYSE:EIX), Seattle Genetics, Inc. (NASDAQ:SGEN), and AutoZone, Inc. (NYSE:AZO). This group of stocks’ market caps are similar to ANSS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KKR | 48 | 2694120 | -8 |
| EIX | 29 | 1046389 | -5 |
| SGEN | 27 | 6153689 | -9 |
| AZO | 45 | 1355325 | 5 |
| Average | 37.25 | 2812381 | -4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $2812 million. That figure was $1060 million in ANSS’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 27 bullish hedge fund positions. ANSYS, Inc. (NASDAQ:ANSS) 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 ANSS as the stock returned 25.5% 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.
