At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cadence Design Systems Inc (NASDAQ:CDNS).
Cadence Design Systems Inc (NASDAQ:CDNS) investors should be aware of a decrease in support from the world's most elite money managers of late. Our calculations also showed that CDNS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="399"] Noam Gottesman of GLG Partners[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the recent hedge fund action surrounding Cadence Design Systems Inc (NASDAQ:CDNS).
How have hedgies been trading Cadence Design Systems Inc (NASDAQ:CDNS)?
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CDNS over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Cadence Design Systems Inc (NASDAQ:CDNS), which was worth $339.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $261.8 million worth of shares. AQR Capital Management, GLG Partners, and Lone Pine Capital 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 Lunia Capital allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 2.7% of its 13F portfolio. Alkeon Capital Management is also relatively very bullish on the stock, dishing out 1.45 percent of its 13F equity portfolio to CDNS.
Seeing as Cadence Design Systems Inc (NASDAQ:CDNS) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies that slashed their entire stakes by the end of the first quarter. Interestingly, Renaissance Technologies dropped the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $12.4 million in stock, and Leon Shaulov's Maplelane Capital was right behind this move, as the fund cut about $6.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds by the end of the first quarter.
Let's check out hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). These stocks are Valero Energy Corporation (NYSE:VLO), RingCentral Inc (NYSE:RNG), Southwest Airlines Co. (NYSE:LUV), and DTE Energy Company (NYSE:DTE). This group of stocks' market caps resemble CDNS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLO,45,275743,-1 RNG,67,2827940,5 LUV,45,2344803,1 DTE,29,516788,-6 Average,46.5,1491319,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.5 hedge funds with bullish positions and the average amount invested in these stocks was $1491 million. That figure was $1340 million in CDNS's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand DTE Energy Company (NYSE:DTE) is the least popular one with only 29 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on CDNS as the stock returned 38.2% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.