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=It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Juniper Networks, Inc. (NYSE:JNPR) and compare its performance against hedge funds' favorite stocks.
Is Juniper Networks, Inc. (NYSE:JNPR) a good investment right now? Prominent investors are buying. The number of long hedge fund positions moved up by 2 lately. Our calculations also showed that JNPR 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' 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 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 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.
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Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. With all of this in mind we're going to analyze the recent hedge fund action encompassing Juniper Networks, Inc. (NYSE:JNPR).
What does smart money think about Juniper Networks, Inc. (NYSE:JNPR)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the second quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in JNPR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Juniper Networks, Inc. (NYSE:JNPR), with a stake worth $127 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $94.1 million. Renaissance Technologies, Pzena Investment Management, and Citadel Investment Group 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 Alight Capital allocated the biggest weight to Juniper Networks, Inc. (NYSE:JNPR), around 2.16% of its 13F portfolio. Mondrian Capital is also relatively very bullish on the stock, dishing out 2.15 percent of its 13F equity portfolio to JNPR.
As industrywide interest jumped, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable call position in Juniper Networks, Inc. (NYSE:JNPR). Balyasny Asset Management had $10 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $5.5 million position during the quarter. The following funds were also among the new JNPR investors: Ray Dalio's Bridgewater Associates, Dipak Patel's Alight Capital, and Michael Gelband's ExodusPoint Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Juniper Networks, Inc. (NYSE:JNPR) but similarly valued. We will take a look at RenaissanceRe Holdings Ltd. (NYSE:RNR), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), F5 Networks, Inc. (NASDAQ:FFIV), and The Trade Desk, Inc. (NASDAQ:TTD). This group of stocks' market caps resemble JNPR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RNR,17,657683,-3 SPR,36,2062498,5 FFIV,22,1179111,-1 TTD,25,388607,1 Average,25,1071975,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1072 million. That figure was $637 million in JNPR's case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 17 bullish hedge fund positions. Juniper Networks, Inc. (NYSE:JNPR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately JNPR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on JNPR were disappointed as the stock returned -6.3% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.