Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Cadence Design Systems Inc (NASDAQ:CDNS) and see how the stock is affected by the recent hedge fund activity.
Cadence Design Systems Inc (NASDAQ:CDNS) has experienced an increase in activity from the world's largest hedge funds lately. CDNS was in 33 hedge funds' portfolios at the end of September. There were 28 hedge funds in our database with CDNS holdings at the end of the previous quarter. Our calculations also showed that CDNS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are a multitude of gauges investors have at their disposal to analyze publicly traded companies. Two of the less known gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best investment managers can beat the S&P 500 by a healthy margin (see the details here).
[caption id="attachment_30621" align="aligncenter" width="600"] Cliff Asness of AQR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the latest hedge fund action encompassing Cadence Design Systems Inc (NASDAQ:CDNS).
How have hedgies been trading Cadence Design Systems Inc (NASDAQ:CDNS)?
At Q3's end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CDNS over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Cadence Design Systems Inc (NASDAQ:CDNS), with a stake worth $347.9 million reported as of the end of September. Trailing AQR Capital Management was Alkeon Capital Management, which amassed a stake valued at $340.4 million. Arrowstreet Capital, GLG Partners, 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 Sensato Capital Management allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 4.06% of its portfolio. Mondrian Capital is also relatively very bullish on the stock, setting aside 1.91 percent of its 13F equity portfolio to CDNS.
Consequently, key hedge funds have been driving this bullishness. Tairen Capital, managed by Larry Chen and Terry Zhang, assembled the most valuable position in Cadence Design Systems Inc (NASDAQ:CDNS). Tairen Capital had $10.8 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $4.2 million investment in the stock during the quarter. The other funds with brand new CDNS positions are Matthew Tewksbury's Stevens Capital Management, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, and Minhua Zhang's Weld Capital Management.
Let's now review hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). We will take a look at Fortis Inc. (NYSE:FTS), MSCI Inc (NYSE:MSCI), Hess Corporation (NYSE:HES), and Copart, Inc. (NASDAQ:CPRT). This group of stocks' market caps are similar to CDNS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTS,13,561241,1 MSCI,37,643687,1 HES,36,921996,1 CPRT,36,580287,6 Average,30.5,676803,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $1580 million in CDNS's case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 13 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CDNS, though not to the same extent, as the stock returned 6.3% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.