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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PTC Inc (NASDAQ:PTC) and determine whether hedge funds had an edge regarding this stock.
PTC Inc (NASDAQ:PTC) investors should be aware of an increase in hedge fund sentiment of late. PTC Inc (NASDAQ:PTC) was in 40 hedge funds' portfolios at the end of June. The all time high for this statistics is 46. There were 35 hedge funds in our database with PTC holdings at the end of March. Our calculations also showed that PTC 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.
Bruce Kovner of Caxton Associates LP
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 junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we're going to take a look at the key hedge fund action regarding PTC Inc (NASDAQ:PTC).
What have hedge funds been doing with PTC Inc (NASDAQ:PTC)?
At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in PTC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, 40 North Management was the largest shareholder of PTC Inc (NASDAQ:PTC), with a stake worth $350.1 million reported as of the end of September. Trailing 40 North Management was Praesidium Investment Management Company, which amassed a stake valued at $207.4 million. Impax Asset Management, Kensico Capital, and Two Creeks Capital Management 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 StackLine Partners allocated the biggest weight to PTC Inc (NASDAQ:PTC), around 13.75% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, designating 13.48 percent of its 13F equity portfolio to PTC.
As one would reasonably expect, key hedge funds have jumped into PTC Inc (NASDAQ:PTC) headfirst. Sandbar Asset Management, managed by Michael Cowley, assembled the most outsized position in PTC Inc (NASDAQ:PTC). Sandbar Asset Management had $5.6 million invested in the company at the end of the quarter. Michael R. Weisberg's Crestwood Capital Management also made a $5.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, and Bruce Kovner's Caxton Associates LP.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as PTC Inc (NASDAQ:PTC) but similarly valued. These stocks are Dropbox, Inc. (NASDAQ:DBX), Autohome Inc (NYSE:ATHM), Banco de Chile (NYSE:BCH), Lennox International Inc. (NYSE:LII), Centrais Eletricas Brasileiras SA (NYSE:EBR), The Western Union Company (NYSE:WU), and Camden Property Trust (NYSE:CPT). All of these stocks' market caps match PTC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DBX,51,1326475,7 ATHM,24,820669,9 BCH,3,38541,-1 LII,24,258111,3 EBR,8,10334,3 WU,34,622814,0 CPT,26,336306,-6 Average,24.3,487607,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $488 million. That figure was $1256 million in PTC's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 3 bullish hedge fund positions. PTC Inc (NASDAQ:PTC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTC is 74.6. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on PTC, though not to the same extent, as the stock returned 17.5% since the end of June and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.