Hedge Funds Are Dumping Cognex Corporation (CGNX)

In this article we will take a look at whether hedge funds think Cognex Corporation (NASDAQ:CGNX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Cognex Corporation (NASDAQ:CGNX) shareholders have witnessed a decrease in hedge fund sentiment recently. Our calculations also showed that CGNX 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 easiest car rental companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the recent hedge fund action encompassing Cognex Corporation (NASDAQ:CGNX).

What have hedge funds been doing with Cognex Corporation (NASDAQ:CGNX)?

Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CGNX over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Cognex Corporation (NASDAQ:CGNX), worth close to $42.7 million, comprising 0.6% of its total 13F portfolio. On Royce & Associates’s heels is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which holds a $33.1 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include Cliff Asness’s AQR Capital Management, Peter Muller’s PDT Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Cognex Corporation (NASDAQ:CGNX), around 1.45% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.58 percent of its 13F equity portfolio to CGNX.

Because Cognex Corporation (NASDAQ:CGNX) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few hedge funds who were dropping their positions entirely heading into Q4. At the top of the heap, Leon Shaulov’s Maplelane Capital cut the largest position of the 750 funds tracked by Insider Monkey, worth close to $11.1 million in stock, and Robert Vincent McHugh’s Jade Capital Advisors was right behind this move, as the fund dropped about $2.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 8 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Cognex Corporation (NASDAQ:CGNX). These stocks are 58.com Inc (NYSE:WUBA), ICON Public Limited Company (NASDAQ:ICLR), Ares Management Corp (NYSE:ARES), and Bio-Techne Corporation (NASDAQ:TECH). This group of stocks’ market caps resemble CGNX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $154 million in CGNX’s case. Bio-Techne Corporation (NASDAQ:TECH) is the most popular stock in this table. On the other hand Ares Management Corp (NYSE:ARES) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Cognex Corporation (NASDAQ:CGNX) is even less popular than ARES. Hedge funds clearly dropped the ball on CGNX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on CGNX as the stock returned 45.4% so far in the second quarter and outperformed the market by an even larger margin.

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