Hedge Funds Are Betting On Cadence Design Systems Inc (CDNS)

In this article you are going to find out whether hedge funds think Cadence Design Systems Inc (NASDAQ:CDNS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Cadence Design Systems Inc (NASDAQ:CDNS) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Cadence Design Systems Inc (NASDAQ:CDNS) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistic is 42. Our calculations also showed that CDNS isn’t among the 30 most popular stocks among hedge funds (click 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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James Dinan of York Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to view the fresh hedge fund action regarding Cadence Design Systems Inc (NASDAQ:CDNS).

Do Hedge Funds Think CDNS Is A Good Stock To Buy Now?

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CDNS over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the most valuable position in Cadence Design Systems Inc (NASDAQ:CDNS). Alkeon Capital Management has a $717.9 million position in the stock, comprising 1.1% of its 13F portfolio. Sitting at the No. 2 spot is Ian Simm of Impax Asset Management, with a $299.1 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position York Capital Management allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 2.8% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to CDNS.

Now, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in Cadence Design Systems Inc (NASDAQ:CDNS). Point72 Asset Management had $29.2 million invested in the company at the end of the quarter. James Dinan’s York Capital Management also made a $24.9 million investment in the stock during the quarter. The other funds with brand new CDNS positions are Ray Dalio’s Bridgewater Associates, Anand Parekh’s Alyeska Investment Group, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). These stocks are The Travelers Companies Inc (NYSE:TRV), Phillips 66 (NYSE:PSX), Okta, Inc. (NASDAQ:OKTA), International Flavors & Fragrances Inc (NYSE:IFF), General Mills, Inc. (NYSE:GIS), Peloton Interactive, Inc. (NASDAQ:PTON), and The Trade Desk, Inc. (NASDAQ:TTD). All of these stocks’ market caps are closest to CDNS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.6 hedge funds with bullish positions and the average amount invested in these stocks was $1978 million. That figure was $1624 million in CDNS’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CDNS is 41.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on CDNS as the stock returned 13.9% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.