Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published 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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Altair Engineering Inc. (NASDAQ:ALTR) makes for a good investment right now.
Altair Engineering Inc. (NASDAQ:ALTR) investors should pay attention to a decrease in hedge fund sentiment lately. Our calculations also showed that ALTR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 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 stocks that are in our short portfolio.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the new hedge fund action regarding Altair Engineering Inc. (NASDAQ:ALTR).
How have hedgies been trading Altair Engineering Inc. (NASDAQ:ALTR)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALTR over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Matrix Capital Management held the most valuable stake in Altair Engineering Inc. (NASDAQ:ALTR), which was worth $85.9 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $55.4 million worth of shares. Alkeon Capital Management, Polar Capital, and Alkeon Capital Management 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 Matrix Capital Management allocated the biggest weight to Altair Engineering Inc. (NASDAQ:ALTR), around 1.83% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.62 percent of its 13F equity portfolio to ALTR.
Because Altair Engineering Inc. (NASDAQ:ALTR) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers that slashed their positions entirely last quarter. Intriguingly, Chuck Royce’s Royce & Associates dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $6.7 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Altair Engineering Inc. (NASDAQ:ALTR). These stocks are Applied Industrial Technologies, Inc. (NYSE:AIT), Cactus, Inc. (NYSE:WHD), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), and Appian Corporation (NASDAQ:APPN). This group of stocks’ market caps are closest to ALTR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIT | 22 | 115713 | 0 |
| WHD | 17 | 141028 | -2 |
| OMAB | 6 | 67651 | -1 |
| APPN | 17 | 380631 | -2 |
| Average | 15.5 | 176256 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $212 million in ALTR’s case. Applied Industrial Technologies, Inc. (NYSE:AIT) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 6 bullish hedge fund positions. Altair Engineering Inc. (NASDAQ:ALTR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ALTR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALTR investors were disappointed as the stock returned -29.5% during the same time period 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 most of these stocks already outperformed the market in 2020.
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.
