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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 (see why hell is coming). 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 Novanta Inc. (NASDAQ:NOVT) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Novanta Inc. (NASDAQ:NOVT) has experienced a decrease in support from the world's most elite money managers lately. Our calculations also showed that NOVT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Noam Gottesman of GLG Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to analyze the key hedge fund action surrounding Novanta Inc. (NASDAQ:NOVT).
What have hedge funds been doing with Novanta Inc. (NASDAQ:NOVT)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in NOVT a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in Novanta Inc. (NASDAQ:NOVT), worth close to $5.8 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Thames Capital Management, managed by Jay Genzer, which holds a $4.9 million position; 3.8% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism encompass Noam Gottesman's GLG Partners, Ken Griffin's Citadel Investment Group and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Thames Capital Management allocated the biggest weight to Novanta Inc. (NASDAQ:NOVT), around 3.83% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to NOVT.
Since Novanta Inc. (NASDAQ:NOVT) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there were a few money managers who were dropping their entire stakes last quarter. Interestingly, David Paradice's Paradice Investment Management dropped the largest position of all the hedgies watched by Insider Monkey, worth about $62 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also said goodbye to its stock, about $0.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Novanta Inc. (NASDAQ:NOVT). These stocks are PTC Therapeutics, Inc. (NASDAQ:PTCT), Acacia Communications, Inc. (NASDAQ:ACIA), Omnicell, Inc. (NASDAQ:OMCL), and El Paso Electric Company (NYSE:EE). All of these stocks' market caps resemble NOVT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTCT,28,378361,-6 ACIA,22,693548,-9 OMCL,17,54589,4 EE,23,398088,8 Average,22.5,381147,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $21 million in NOVT's case. PTC Therapeutics, Inc. (NASDAQ:PTCT) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Novanta Inc. (NASDAQ:NOVT) is even less popular than OMCL. Hedge funds clearly dropped the ball on NOVT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on NOVT as the stock returned 33.7% in the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.