Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Cadence Design Systems Inc (NASDAQ:CDNS).
Is Cadence Design Systems Inc (NASDAQ:CDNS) a worthy investment right now? Investors who are in the know are turning bullish. The number of bullish hedge fund bets moved up by 6 in recent months. Our calculations also showed that CDNS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). CDNS was in 42 hedge funds’ portfolios at the end of December. There were 36 hedge funds in our database with CDNS 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s view the new hedge fund action regarding Cadence Design Systems Inc (NASDAQ:CDNS).
What have hedge funds been doing with Cadence Design Systems Inc (NASDAQ:CDNS)?
At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in CDNS a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Alkeon Capital Management held the most valuable stake in Cadence Design Systems Inc (NASDAQ:CDNS), which was worth $356.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $280.6 million worth of shares. Arrowstreet Capital, GLG Partners, and Citadel Investment Group 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 Mondrian Capital allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 2.75% of its 13F portfolio. Alkeon Capital Management is also relatively very bullish on the stock, earmarking 1.33 percent of its 13F equity portfolio to CDNS.
Consequently, some big names were breaking ground themselves. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the largest position in Cadence Design Systems Inc (NASDAQ:CDNS). Polar Capital had $43.2 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $10.1 million position during the quarter. The following funds were also among the new CDNS investors: Anand Parekh’s Alyeska Investment Group, Qing Li’s Sciencast Management, and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cadence Design Systems Inc (NASDAQ:CDNS) but similarly valued. These stocks are D.R. Horton, Inc. (NYSE:DHI), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Ryanair Holdings plc (NASDAQ:RYAAY), and Mettler-Toledo International Inc. (NYSE:MTD). This group of stocks’ market valuations are similar to CDNS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DHI | 51 | 2240658 | -8 |
| IBKR | 29 | 886155 | 4 |
| RYAAY | 22 | 829569 | 0 |
| MTD | 29 | 560946 | 4 |
| Average | 32.75 | 1129332 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1129 million. That figure was $1534 million in CDNS’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 22 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the most popular stock in this group but hedge fund interest is still above average. 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. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on CDNS, though not to the same extent, as the stock returned -13.9% during the first two months of 2020 (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
