NetScout Systems, Inc. (NTCT): Are Hedge Funds Right About This Stock?

Is NetScout Systems, Inc. (NASDAQ:NTCT) a good investment?

If you were to ask many of your peers, hedge funds are assumed to be delayed, old investment vehicles of an era lost to time. Although there are more than 8,000 hedge funds in operation today, Insider Monkey looks at the bigwigs of this club, about 525 funds. It is widely held that this group has its hands on the majority of all hedge funds’ total assets, and by tracking their highest quality stock picks, we’ve revealed a few investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we‘ve began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as necessary, positive insider trading sentiment is another way to analyze the marketplace. As the old adage goes: there are plenty of stimuli for a corporate insider to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Various academic studies have demonstrated the impressive potential of this tactic if shareholders understand where to look (learn more here).

Keeping this in mind, let’s analyze the latest info about NetScout Systems, Inc. (NASDAQ:NTCT).

How are hedge funds trading NetScout Systems, Inc. (NASDAQ:NTCT)?

At the end of the second quarter, a total of 14 of the hedge funds we track held long positions in this stock, a change of 0% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially.

According to our 13F database, Invicta Capital Management, managed by Gregory A. Weaver, holds the largest position in NetScout Systems, Inc. (NASDAQ:NTCT). Invicta Capital Management has a $7.6 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $6.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Brian Ashford-Russell and Tim Woolley’s Polar Capital, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Due to the fact NetScout Systems, Inc. (NASDAQ:NTCT) has experienced dropping sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that slashed their entire stakes last quarter. At the top of the heap, Mark Kingdon’s Kingdon Capital dumped the largest stake of the 450+ funds we watch, valued at an estimated $3.1 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also sold off its stock, about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading NetScout Systems, Inc. (NASDAQ:NTCT)?

Bullish insider trading is particularly usable when the primary stock in question has experienced transactions within the past half-year. Over the latest 180-day time frame, NetScout Systems, Inc. (NASDAQ:NTCT) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to NetScout Systems, Inc. (NASDAQ:NTCT). These stocks are Blackbaud, Inc. (NASDAQ:BLKB), Interactive Intelligence Group Inc (NASDAQ:ININ), MicroStrategy Incorporated (NASDAQ:MSTR), Bottomline Technologies (NASDAQ:EPAY), and Pegasystems Inc. (NASDAQ:PEGA). This group of stocks are in the business software & services industry and their market caps match NTCT’s market cap.

Using the returns demonstrated by the previously mentioned research, regular investors should always pay attention to hedge fund and insider trading activity, and NetScout Systems, Inc. (NASDAQ:NTCT) is an important part of this process.

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