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 31.2% last year. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% 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 Citrix Systems, Inc. (NASDAQ:CTXS).
Citrix Systems, Inc. (NASDAQ:CTXS) was in 27 hedge funds’ portfolios at the end of September. CTXS shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 34 hedge funds in our database with CTXS positions at the end of the previous quarter. Our calculations also showed that CTXS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Paul Singer of Elliott 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s check out the recent hedge fund action regarding Citrix Systems, Inc. (NASDAQ:CTXS).
How have hedgies been trading Citrix Systems, Inc. (NASDAQ:CTXS)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CTXS over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Elliott Management, managed by Paul Singer, holds the number one position in Citrix Systems, Inc. (NASDAQ:CTXS). Elliott Management has a $587.9 million position in the stock, comprising 4.9% of its 13F portfolio. Sitting at the No. 2 spot is Noam Gottesman of GLG Partners, with a $213.3 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism contain Farallon Capital, Karthik Sarma’s SRS Investment Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Fir Tree allocated the biggest weight to Citrix Systems, Inc. (NASDAQ:CTXS), around 5.81% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, designating 4.9 percent of its 13F equity portfolio to CTXS.
Because Citrix Systems, Inc. (NASDAQ:CTXS) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that slashed their positions entirely heading into Q4. It’s worth mentioning that enaissance Technologies dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $71.4 million in call options, and Leon Shaulov’s Maplelane Capital was right behind this move, as the fund dumped about $68.7 million worth. These moves are interesting, as total hedge fund interest fell by 7 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Citrix Systems, Inc. (NASDAQ:CTXS) but similarly valued. These stocks are Host Hotels & Resorts, Inc. (NYSE:HST), The J.M. Smucker Company (NYSE:SJM), Tenaris S.A. (NYSE:TS), and NetApp Inc. (NASDAQ:NTAP). This group of stocks’ market values are similar to CTXS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HST | 27 | 594453 | -1 |
| SJM | 26 | 453856 | 0 |
| TS | 11 | 412435 | -5 |
| NTAP | 24 | 735652 | -2 |
| Average | 22 | 549099 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $1659 million in CTXS’s case. Host Hotels & Resorts, Inc. (NYSE:HST) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 11 bullish hedge fund positions. Citrix Systems, Inc. (NASDAQ:CTXS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CTXS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CTXS were disappointed as the stock returned 9.8% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
