Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Stratasys, Ltd. (NASDAQ:SSYS) is a good investment right now.
Is Stratasys, Ltd. (NASDAQ:SSYS) the right pick for your portfolio? Hedge funds are becoming hopeful. The number of bullish hedge fund positions rose by 4 lately. Our calculations also showed that SSYS 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). SSYS was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 14 hedge funds in our database with SSYS positions at the end of the previous quarter.
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 S&P 500 ETFs by 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.
Philippe Laffont of Coatue Management
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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 peek at the latest hedge fund action surrounding Stratasys, Ltd. (NASDAQ:SSYS).
What have hedge funds been doing with Stratasys, Ltd. (NASDAQ:SSYS)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in SSYS a year ago. So, let’s check out 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 $48 million worth of stock at the end of September. It was followed by GAMCO Investors with a $10.4 million position. Other investors bullish on the company included Renaissance Technologies, Cinctive Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Cinctive Capital Management allocated the biggest weight to Stratasys, Ltd. (NASDAQ:SSYS), around 0.38% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to SSYS.
As one would reasonably expect, key hedge funds were breaking ground themselves. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, initiated the most outsized position in Stratasys, Ltd. (NASDAQ:SSYS). Cinctive Capital Management had $3.6 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Ray Dalio’s Bridgewater Associates, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks similar to Stratasys, Ltd. (NASDAQ:SSYS). These stocks are Encore Capital Group, Inc. (NASDAQ:ECPG), National Bank Holdings Corp (NYSE:NBHC), Transportadora de Gas del Sur SA (NYSE:TGS), and Bright Scholar Education Holdings Limited (NYSE:BEDU). This group of stocks’ market caps resemble SSYS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECPG | 13 | 72952 | 1 |
| NBHC | 9 | 83778 | -3 |
| TGS | 10 | 24814 | 1 |
| BEDU | 8 | 87125 | -1 |
| Average | 10 | 67167 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $82 million in SSYS’s case. Encore Capital Group, Inc. (NASDAQ:ECPG) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Stratasys, Ltd. (NASDAQ:SSYS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately SSYS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SSYS were disappointed as the stock returned -18.5% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.
