We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Align Technology, Inc. (NASDAQ:ALGN).
Is Align Technology, Inc. (NASDAQ:ALGN) a splendid investment right now? Prominent investors are taking a bearish view. The number of long hedge fund bets dropped by 7 lately. Our calculations also showed that ALGN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ALGN was in 34 hedge funds' portfolios at the end of September. There were 41 hedge funds in our database with ALGN positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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_26082" align="aligncenter" width="600"] Andreas Halvorsen of Viking Global[/caption]
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 check out the new hedge fund action surrounding Align Technology, Inc. (NASDAQ:ALGN).
How are hedge funds trading Align Technology, Inc. (NASDAQ:ALGN)?
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the second quarter of 2019. On the other hand, there were a total of 37 hedge funds with a bullish position in ALGN a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Align Technology, Inc. (NASDAQ:ALGN), which was worth $400.9 million at the end of the third quarter. On the second spot was Hillhouse Capital Management which amassed $283.2 million worth of shares. Bares Capital Management, Viking Global, and Fisher Asset 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 Bares Capital Management allocated the biggest weight to Align Technology, Inc. (NASDAQ:ALGN), around 5.7% of its portfolio. Consonance Capital Management is also relatively very bullish on the stock, earmarking 5.35 percent of its 13F equity portfolio to ALGN.
Since Align Technology, Inc. (NASDAQ:ALGN) has witnessed a decline in interest from the smart money, we can see that there exists a select few funds that decided to sell off their entire stakes in the third quarter. Interestingly, Gabriel Plotkin's Melvin Capital Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, valued at an estimated $68.4 million in stock, and Arthur B Cohen and Joseph Healey's Healthcor Management was right behind this move, as the fund sold off about $56.2 million worth. These moves are important to note, as total hedge fund interest dropped by 7 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Align Technology, Inc. (NASDAQ:ALGN). We will take a look at MGM Resorts International (NYSE:MGM), ArcelorMittal (NYSE:MT), Quest Diagnostics Incorporated (NYSE:DGX), and SK Telecom Co., Ltd. (NYSE:SKM). This group of stocks' market caps match ALGN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGM,48,2194471,13 MT,14,192839,-1 DGX,33,561377,9 SKM,6,42756,-1 Average,25.25,747861,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $1497 million in ALGN's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 6 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on ALGN as the stock returned 53.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.