“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Stratasys, Ltd. (NASDAQ:SSYS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of March. At the end of this article we will also compare SSYS to other stocks including OneSmart International Education Group Limited (NYSE:ONE), Bright Scholar Education Holdings Limited (NYSE:BEDU), and Oxford Industries, Inc. (NYSE:OXM) to get a better sense of its popularity.
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 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.
Let’s view the new hedge fund action regarding Stratasys, Ltd. (NASDAQ:SSYS).
What have hedge funds been doing with Stratasys, Ltd. (NASDAQ:SSYS)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. By comparison, 10 hedge funds held shares or bullish call options in SSYS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Stratasys, Ltd. (NASDAQ:SSYS) was held by Fisher Asset Management, which reported holding $50.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $28.6 million position. Other investors bullish on the company included D E Shaw, GAMCO Investors, and Royce & Associates.
Judging by the fact that Stratasys, Ltd. (NASDAQ:SSYS) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers that decided to sell off their entire stakes heading into Q3. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, valued at close to $8.9 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $1.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Stratasys, Ltd. (NASDAQ:SSYS) but similarly valued. We will take a look at OneSmart International Education Group Limited (NYSE:ONE), Bright Scholar Education Holdings Limited (NYSE:BEDU), Oxford Industries, Inc. (NYSE:OXM), and Select Energy Services, Inc. (NYSE:WTTR). This group of stocks’ market values are closest to SSYS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONE | 6 | 42937 | -1 |
| BEDU | 9 | 85774 | 1 |
| OXM | 11 | 67701 | 2 |
| WTTR | 15 | 65346 | 3 |
| Average | 10.25 | 65440 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $137 million in SSYS’s case. Select Energy Services, Inc. (NYSE:WTTR) is the most popular stock in this table. On the other hand OneSmart International Education Group Limited (NYSE:ONE) is the least popular one with only 6 bullish hedge fund positions. Stratasys, Ltd. (NASDAQ:SSYS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SSYS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SSYS were disappointed as the stock returned -1% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
