F5 Networks, Inc. (FFIV): Are Hedge Funds Right About This Stock?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze F5 Networks, Inc. (NASDAQ:FFIV).

Is F5 Networks, Inc. (NASDAQ:FFIV) a worthy investment right now? Investors who are in the know are reducing their bets on the stock. The number of bullish hedge fund positions went down by 3 lately. F5 Networks, Inc. (NASDAQ:FFIV) was in 28 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with F5 Networks, Inc. (NASDAQ:FFIV) holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as InterContinental Hotels Group PLC (ADR) (NYSE:IHG), Michael Kors Holdings Ltd (NYSE:KORS), and Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) to gather more data points.

Today, there are numerous metrics that market participants have at their disposal to assess their holdings. A pair of the most useful metrics are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top money managers can trounce the S&P 500 by a healthy margin (see the details here).

With all of this in mind, we’re going to take a look at the recent action encompassing F5 Networks, Inc. (NASDAQ:FFIV).

What have hedge funds been doing with F5 Networks, Inc. (NASDAQ:FFIV)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 10% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in F5 Networks, Inc. (NASDAQ:FFIV). Arrowstreet Capital has a $106.4 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $87.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Because F5 Networks, Inc. (NASDAQ:FFIV) has faced a declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedgies who were dropping their positions entirely in the third quarter. Interestingly, Clint Carlson’s Carlson Capital dumped the largest investment of all the hedgies tracked by Insider Monkey, totaling about $12.3 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $7.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as F5 Networks, Inc. (NASDAQ:FFIV) but similarly valued. We will take a look at InterContinental Hotels Group PLC (ADR) (NYSE:IHG), Michael Kors Holdings Ltd (NYSE:KORS), Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ), and Towers Watson & Co (NASDAQ:TW). All of these stocks’ market caps are similar to F5 Networks, Inc. (NASDAQ:FFIV)’s market cap.

As you can see, these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $680 million. That figure was $607 million in F5 Networks, Inc. (NASDAQ:FFIV)’s case. Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) is the most popular stock in this table. On the other hand, InterContinental Hotels Group PLC (ADR) (NYSE:IHG) is the least popular one with only 12 bullish hedge fund positions. F5 Networks, Inc. (NASDAQ:FFIV) 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. In this regard, Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) might be a better candidate to consider a long position.