Should You Avoid F5 Networks, Inc. (FFIV)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding F5 Networks, Inc. (NASDAQ:FFIV).

Is F5 Networks, Inc. (NASDAQ:FFIV) worth your attention right now? Money managers are getting less optimistic. The number of bullish hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that FFIV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FFIV was in 22 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with FFIV holdings at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are tons of indicators market participants have at their disposal to evaluate their stock investments. A couple of the most under-the-radar indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform their index-focused peers by a superb margin (see the details here).

Cliff Asness of AQR Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the new hedge fund action encompassing F5 Networks, Inc. (NASDAQ:FFIV).

Hedge fund activity in F5 Networks, Inc. (NASDAQ:FFIV)

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FFIV over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the largest position in F5 Networks, Inc. (NASDAQ:FFIV), worth close to $322.4 million, corresponding to 0.3% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $284.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Cliff Asness’s AQR Capital Management, David E. Shaw’s D E Shaw and Anand Parekh’s Alyeska Investment Group. In terms of the portfolio weights assigned to each position Alyeska Investment Group allocated the biggest weight to F5 Networks, Inc. (NASDAQ:FFIV), around 0.78% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to FFIV.

Since F5 Networks, Inc. (NASDAQ:FFIV) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few funds who sold off their full holdings last quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $8.1 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund sold off about $5.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as F5 Networks, Inc. (NASDAQ:FFIV) but similarly valued. These stocks are The Trade Desk, Inc. (NASDAQ:TTD), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), Nordson Corporation (NASDAQ:NDSN), and Aspen Technology, Inc. (NASDAQ:AZPN). This group of stocks’ market valuations are similar to FFIV’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $1179 million in FFIV’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand Nordson Corporation (NASDAQ:NDSN) is the least popular one with only 15 bullish hedge fund positions. F5 Networks, Inc. (NASDAQ:FFIV) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FFIV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FFIV investors were disappointed as the stock returned 3.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.