Is Avid Technology, Inc. (NASDAQ:AVID) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Avid Technology, Inc. (NASDAQ:AVID) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged but still at an elevated level for a small cap stock Avid's size. The stock was in 13 hedge funds' portfolios at the end of September. At the end of this article we will also compare AVID to other stocks including Leju Holdings Limited (NYSE:LEJU), Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), and Northrim BanCorp, Inc. (NASDAQ:NRIM) to get a better sense of its popularity. Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the recent hedge fund action encompassing Avid Technology, Inc. (NASDAQ:AVID).
How have hedgies been trading Avid Technology, Inc. (NASDAQ:AVID)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in AVID a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Avid Technology, Inc. (NASDAQ:AVID) was held by Cove Street Capital, which reported holding $13 million worth of stock at the end of September. It was followed by Royce & Associates with a $11.3 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Avid Technology, Inc. (NASDAQ:AVID), around 1.81% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to AVID.
Seeing as Avid Technology, Inc. (NASDAQ:AVID) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who sold off their positions entirely by the end of the third quarter. Interestingly, Joseph Samuels's Islet Management cut the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $3.7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund sold off about $1.8 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Avid Technology, Inc. (NASDAQ:AVID) but similarly valued. These stocks are Leju Holdings Limited (NYSE:LEJU), Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), Northrim BanCorp, Inc. (NASDAQ:NRIM), and Ames National Corporation (NASDAQ:ATLO). This group of stocks' market caps are closest to AVID's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEJU,1,2529,-1 XERS,4,53600,-1 NRIM,7,29237,-1 ATLO,3,21073,0 Average,3.75,26610,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $39 million in AVID's case. Northrim BanCorp, Inc. (NASDAQ:NRIM) is the most popular stock in this table. On the other hand Leju Holdings Limited (NYSE:LEJU) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Avid Technology, Inc. (NASDAQ:AVID) is more popular among hedge funds. 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 AVID as the stock returned 27.1% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.