It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Arista Networks Inc (NYSE:ANET).
Is Arista Networks Inc (NYSE:ANET) a healthy stock for your portfolio? The best stock pickers are becoming less confident. The number of bullish hedge fund positions were trimmed by 8 lately. Our calculations also showed that ANET isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ANET was in 20 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with ANET positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are perceived as slow, old financial vehicles of years past. While there are more than 8000 funds with their doors open at present, We choose to focus on the aristocrats of this group, around 750 funds. It is estimated that this group of investors administer the majority of all hedge funds’ total capital, and by monitoring their highest performing stock picks, Insider Monkey has unsheathed numerous investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Charles Davidson of Wexford Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the key hedge fund action encompassing Arista Networks Inc (NYSE:ANET).
How have hedgies been trading Arista Networks Inc (NYSE:ANET)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in ANET a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Arista Networks Inc (NYSE:ANET), with a stake worth $77.2 million reported as of the end of September. Trailing Renaissance Technologies was Polar Capital, which amassed a stake valued at $41.7 million. D E Shaw, Adage Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Marlowe Partners allocated the biggest weight to Arista Networks Inc (NYSE:ANET), around 3.54% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to ANET.
Judging by the fact that Arista Networks Inc (NYSE:ANET) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few money managers that decided to sell off their positions entirely in the third quarter. Interestingly, Jeff Lignelli’s Incline Global Management cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $26.6 million in stock. Robert B. Gillam’s fund, McKinley Capital Management, also cut its stock, about $16.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 8 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. We will take a look at Keysight Technologies Inc (NYSE:KEYS), Restaurant Brands International Inc (NYSE:QSR), Best Buy Co., Inc. (NYSE:BBY), and CMS Energy Corporation (NYSE:CMS). This group of stocks’ market values match ANET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEYS | 45 | 999981 | 6 |
| QSR | 55 | 4249554 | 16 |
| BBY | 27 | 628028 | -4 |
| CMS | 26 | 942764 | 4 |
| Average | 38.25 | 1705082 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1705 million. That figure was $179 million in ANET’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand CMS Energy Corporation (NYSE:CMS) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Arista Networks Inc (NYSE:ANET) is even less popular than CMS. Hedge funds dodged a bullet by taking a bearish stance towards ANET. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ANET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ANET investors were disappointed as the stock returned -18.3% during the fourth quarter (through the end of November) and underperformed 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
