The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Casa Systems, Inc. (NASDAQ:CASA), and what that likely means for the prospects of the company and its stock.
Casa Systems, Inc. (NASDAQ:CASA) investors should pay attention to a decrease in hedge fund sentiment of late. CASA was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with CASA holdings at the end of the previous quarter. Our calculations also showed that CASA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s view the new hedge fund action encompassing Casa Systems, Inc. (NASDAQ:CASA).
What does smart money think about Casa Systems, Inc. (NASDAQ:CASA)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CASA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Casa Systems, Inc. (NASDAQ:CASA), with a stake worth $4.5 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $3.8 million. Arrowstreet Capital, Two Sigma Advisors, and StackLine Partners 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 StackLine Partners allocated the biggest weight to Casa Systems, Inc. (NASDAQ:CASA), around 1.19% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to CASA.
Seeing as Casa Systems, Inc. (NASDAQ:CASA) has faced falling interest from hedge fund managers, logic holds that there is a sect of money managers that elected to cut their entire stakes last quarter. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $0.6 million in stock. Peter Muller’s fund, PDT Partners, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Casa Systems, Inc. (NASDAQ:CASA) but similarly valued. These stocks are TPI Composites, Inc. (NASDAQ:TPIC), Peoples Bancorp Inc. (NASDAQ:PEBO), CEVA, Inc. (NASDAQ:CEVA), and Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW). This group of stocks’ market caps are similar to CASA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPIC | 14 | 97850 | -2 |
| PEBO | 7 | 27640 | 0 |
| CEVA | 10 | 28922 | 0 |
| AAWW | 13 | 28330 | -3 |
| Average | 11 | 45686 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $19 million in CASA’s case. TPI Composites, Inc. (NASDAQ:TPIC) is the most popular stock in this table. On the other hand Peoples Bancorp Inc. (NASDAQ:PEBO) is the least popular one with only 7 bullish hedge fund positions. Casa Systems, Inc. (NASDAQ:CASA) 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 CASA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CASA investors were disappointed as the stock returned -53.2% 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.
