In this article we will take a look at whether hedge funds think Teradyne, Inc. (NYSE:TER) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Teradyne, Inc. (NYSE:TER) was in 28 hedge funds' portfolios at the end of the first quarter of 2020. TER investors should pay attention to a decrease in activity from the world's largest hedge funds recently. There were 33 hedge funds in our database with TER positions at the end of the previous quarter. Our calculations also showed that TER 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.
[caption id="attachment_365194" align="aligncenter" width="400"] David E. Shaw of D.E. Shaw[/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 as well as this tiny lithium play. 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. With all of this in mind we're going to take a look at the new hedge fund action encompassing Teradyne, Inc. (NYSE:TER).
Hedge fund activity in Teradyne, Inc. (NYSE:TER)
Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in TER a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Teradyne, Inc. (NYSE:TER), which was worth $316.4 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $160.5 million worth of shares. Arrowstreet Capital, Two Sigma Advisors, and D E Shaw 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 L2 Asset Management allocated the biggest weight to Teradyne, Inc. (NYSE:TER), around 2.79% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, dishing out 1.29 percent of its 13F equity portfolio to TER.
Seeing as Teradyne, Inc. (NYSE:TER) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there were a few funds that decided to sell off their full holdings by the end of the first quarter. Intriguingly, Michael Rockefeller and KarláKroeker's Woodline Partners said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $29.5 million in stock. Andrew Sandler's fund, Sandler Capital Management, also said goodbye to its stock, about $11.2 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds by the end of the first quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Teradyne, Inc. (NYSE:TER) but similarly valued. These stocks are ONEOK, Inc. (NYSE:OKE), Medical Properties Trust, Inc. (NYSE:MPW), Fair Isaac Corporation (NYSE:FICO), and Elanco Animal Health Incorporated (NYSE:ELAN). This group of stocks' market caps resemble TER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OKE,25,135073,-6 MPW,16,164781,2 FICO,41,1225484,-4 ELAN,26,340715,3 Average,27,466513,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $842 million in TER's case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 16 bullish hedge fund positions. Teradyne, Inc. (NYSE:TER) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on TER as the stock returned 23.9% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.