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Aspen Technology, Inc. (AZPN) vs. Top 20 Hedge Fund Stocks in 2019

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Aspen Technology, Inc. (NASDAQ:AZPN) investors should pay attention to an increase in hedge fund sentiment lately. Our calculations also showed that AZPN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to take a gander at the key hedge fund action regarding Aspen Technology, Inc. (NASDAQ:AZPN).

How have hedgies been trading Aspen Technology, Inc. (NASDAQ:AZPN)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AZPN over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Aspen Technology, Inc. (NASDAQ:AZPN) was held by Renaissance Technologies, which reported holding $292.7 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $250.7 million position. Other investors bullish on the company included Fisher Asset Management, Citadel Investment Group, and Two Creeks Capital Management. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to Aspen Technology, Inc. (NASDAQ:AZPN), around 5.89% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, designating 2.09 percent of its 13F equity portfolio to AZPN.

As aggregate interest increased, key hedge funds have jumped into Aspen Technology, Inc. (NASDAQ:AZPN) headfirst. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, created the biggest position in Aspen Technology, Inc. (NASDAQ:AZPN). Waratah Capital Advisors had $20.8 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also initiated a $11.3 million position during the quarter. The other funds with brand new AZPN positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, John Overdeck and David Siegel's Two Sigma Advisors, and Matthew Tewksbury's Stevens Capital Management.

Let's also examine hedge fund activity in other stocks similar to Aspen Technology, Inc. (NASDAQ:AZPN). These stocks are Westlake Chemical Corporation (NYSE:WLK), Cognex Corporation (NASDAQ:CGNX), News Corporation (NASDAQ:NWS), and Avantor, Inc. (NYSE:AVTR). This group of stocks' market caps match AZPN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WLK,18,352906,-5 CGNX,18,179338,5 NWS,11,33867,2 AVTR,26,524476,-4 Average,18.25,272647,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $1267 million in AZPN's case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand News Corporation (NASDAQ:NWS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Aspen Technology, Inc. (NASDAQ:AZPN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AZPN as the stock returned 47.2% in 2019 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.

5 Most Popular Stocks Among Hedge Funds

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

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