We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
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 Synopsys, Inc. (NASDAQ:SNPS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in Synopsys, Inc. (NASDAQ:SNPS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Veeva Systems Inc (NYSE:VEEV), Brown-Forman Corporation (NYSE:BF), and Nokia Corporation (NYSE:NOK) to gather more data points. Our calculations also showed that SNPS 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sahm Adrangi of Kerrisdale Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. Now let’s check out the latest hedge fund action surrounding Synopsys, Inc. (NASDAQ:SNPS).
How are hedge funds trading Synopsys, Inc. (NASDAQ:SNPS)?
At the end of the fourth quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNPS over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Synopsys, Inc. (NASDAQ:SNPS), with a stake worth $352.8 million reported as of the end of September. Trailing Alkeon Capital Management was AQR Capital Management, which amassed a stake valued at $95.4 million. Marshall Wace LLP, D E Shaw, and Millennium Management 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 Oribel Capital Management allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 3.75% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, dishing out 2.03 percent of its 13F equity portfolio to SNPS.
Because Synopsys, Inc. (NASDAQ:SNPS) has faced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of money managers that elected to cut their entire stakes by the end of the third quarter. Intriguingly, John Armitage’s Egerton Capital Limited dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, worth about $122.6 million in stock, and Larry Chen and Terry Zhang’s Tairen Capital was right behind this move, as the fund cut about $22.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Synopsys, Inc. (NASDAQ:SNPS) but similarly valued. We will take a look at Veeva Systems Inc (NYSE:VEEV), Brown-Forman Corporation (NYSE:BF), Nokia Corporation (NYSE:NOK), and Skyworks Solutions Inc (NASDAQ:SWKS). This group of stocks’ market valuations are closest to SNPS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VEEV | 44 | 766454 | 8 |
| BF | 23 | 609563 | 1 |
| NOK | 16 | 227900 | -8 |
| SWKS | 43 | 1178499 | 17 |
| Average | 31.5 | 695604 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $1165 million in SNPS’s case. Veeva Systems Inc (NYSE:VEEV) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Synopsys, Inc. (NASDAQ:SNPS) 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 returned 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on SNPS as the stock returned 7.5% so far in 2020 (through May 1st) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
