Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 30 stock picks easily bested the broader market, at 6.7% compared to 2.6%, despite there being a few duds in there like Facebook (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is F5 Networks, Inc. (NASDAQ:FFIV) undervalued? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund bets retreated by 2 recently. Our calculations also showed that FFIV isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's view the fresh hedge fund action surrounding F5 Networks, Inc. (NASDAQ:FFIV).
How are hedge funds trading F5 Networks, Inc. (NASDAQ:FFIV)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FFIV over the last 13 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in F5 Networks, Inc. (NASDAQ:FFIV), which was worth $402.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $189.7 million worth of shares. Moreover, D E Shaw, Arrowstreet Capital, and Balyasny Asset Management were also bullish on F5 Networks, Inc. (NASDAQ:FFIV), allocating a large percentage of their portfolios to this stock.
Judging by the fact that F5 Networks, Inc. (NASDAQ:FFIV) has witnessed a decline in interest from the smart money, we can see that there lies a certain "tier" of fund managers who were dropping their positions entirely heading into Q3. At the top of the heap, Anand Parekh's Alyeska Investment Group dumped the largest stake of the 700 funds watched by Insider Monkey, comprising about $28.1 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund said goodbye to about $9.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as F5 Networks, Inc. (NASDAQ:FFIV) but similarly valued. We will take a look at Arch Capital Group Ltd. (NASDAQ:ACGL), AXA Equitable Holdings, Inc. (NYSE:EQH), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), and Copart, Inc. (NASDAQ:CPRT). This group of stocks' market caps are closest to FFIV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACGL,17,1118780,1 EQH,21,763476,2 SQM,9,70961,-6 CPRT,31,248204,3 Average,19.5,550355,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $550 million. That figure was $920 million in FFIV's case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 9 bullish hedge fund positions. F5 Networks, Inc. (NASDAQ:FFIV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard CPRT might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.