Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Synopsys, Inc. (NASDAQ:SNPS) and see how the stock is affected by the recent hedge fund activity.
Synopsys, Inc. (NASDAQ:SNPS) was in 42 hedge funds’ portfolios at the end of the second quarter of 2019. SNPS shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. There were 31 hedge funds in our database with SNPS holdings at the end of the previous quarter. Our calculations also showed that SNPS isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the latest hedge fund action regarding Synopsys, Inc. (NASDAQ:SNPS).
Hedge fund activity in Synopsys, Inc. (NASDAQ:SNPS)
At Q2’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in SNPS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Synopsys, Inc. (NASDAQ:SNPS), with a stake worth $394.5 million reported as of the end of March. Trailing Alkeon Capital Management was Citadel Investment Group, which amassed a stake valued at $236.2 million. Egerton Capital Limited, D E Shaw, and Alyeska Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, created the most valuable position in Synopsys, Inc. (NASDAQ:SNPS). Alyeska Investment Group had $94.1 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also made a $22.8 million investment in the stock during the quarter. The other funds with brand new SNPS positions are Principal Global Investors’s Columbus Circle Investors, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now review hedge fund activity in other stocks similar to Synopsys, Inc. (NASDAQ:SNPS). We will take a look at Northern Trust Corporation (NASDAQ:NTRS), Expedia Group, Inc. (NASDAQ:EXPE), Ulta Beauty, Inc. (NASDAQ:ULTA), and Liberty Global Plc (NASDAQ:LBTYK). This group of stocks’ market values resemble SNPS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTRS | 29 | 443983 | -5 |
| EXPE | 33 | 2556290 | 1 |
| ULTA | 44 | 941309 | 1 |
| LBTYK | 34 | 3768866 | 1 |
| Average | 35 | 1927612 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1928 million. That figure was $1551 million in SNPS’s case. Ulta Beauty, Inc. (NASDAQ:ULTA) is the most popular stock in this table. On the other hand Northern Trust Corporation (NASDAQ:NTRS) is the least popular one with only 29 bullish hedge fund positions. Synopsys, Inc. (NASDAQ:SNPS) 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 (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SNPS as the stock returned 6.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
