We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards A10 Networks Inc (NYSE:ATEN) and determine whether hedge funds skillfully traded this stock.
A10 Networks Inc (NYSE:ATEN) investors should be aware of an increase in enthusiasm from smart money lately. A10 Networks Inc (NYSE:ATEN) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ATEN isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to review the fresh hedge fund action surrounding A10 Networks Inc (NYSE:ATEN).
How have hedgies been trading A10 Networks Inc (NYSE:ATEN)?
At Q2's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ATEN over the last 20 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.
More specifically, VIEX Capital Advisors was the largest shareholder of A10 Networks Inc (NYSE:ATEN), with a stake worth $53.7 million reported as of the end of September. Trailing VIEX Capital Advisors was Renaissance Technologies, which amassed a stake valued at $21 million. Lynrock Lake, Royce & Associates, and Divisar 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 VIEX Capital Advisors allocated the biggest weight to A10 Networks Inc (NYSE:ATEN), around 58.1% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, earmarking 4.58 percent of its 13F equity portfolio to ATEN.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Winton Capital Management, managed by David Harding, assembled the biggest position in A10 Networks Inc (NYSE:ATEN). Winton Capital Management had $0.3 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $0.2 million position during the quarter. The other funds with brand new ATEN positions are Noam Gottesman's GLG Partners, Donald Sussman's Paloma Partners, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to A10 Networks Inc (NYSE:ATEN). These stocks are Ocular Therapeutix Inc (NASDAQ:OCUL), FutureFuel Corp. (NYSE:FF), Extreme Networks, Inc (NASDAQ:EXTR), Global Medical REIT Inc. (NYSE:GMRE), WisdomTree Investments, Inc. (NASDAQ:WETF), Helix Energy Solutions Group Inc. (NYSE:HLX), and Myers Industries, Inc. (NYSE:MYE). This group of stocks' market caps are similar to ATEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCUL,11,109029,4 FF,12,51161,1 EXTR,18,67700,2 GMRE,7,13738,-3 WETF,18,34977,-2 HLX,10,9854,0 MYE,11,91599,-2 Average,12.4,54008,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $126 million in ATEN's case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand Global Medical REIT Inc. (NYSE:GMRE) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks A10 Networks Inc (NYSE:ATEN) is more popular among hedge funds. Our overall hedge fund sentiment score for ATEN is 88. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately ATEN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ATEN were disappointed as the stock returned -6.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.