Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is 3D Systems Corporation (NYSE:DDD) the right investment to pursue these days? Money managers are getting less optimistic. The number of long hedge fund bets were trimmed by 2 lately. Our calculations also showed that DDD isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are viewed as worthless, outdated investment tools of the past. While there are greater than 8000 funds in operation at the moment, We choose to focus on the aristocrats of this club, approximately 750 funds. These hedge fund managers watch over the lion's share of all hedge funds' total capital, and by observing their first-class equity investments, Insider Monkey has formulated a number of investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the latest hedge fund action regarding 3D Systems Corporation (NYSE:DDD).
What does smart money think about 3D Systems Corporation (NYSE:DDD)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DDD over the last 16 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of 3D Systems Corporation (NYSE:DDD), with a stake worth $18.2 million reported as of the end of March. Trailing D E Shaw was Coatue Management, which amassed a stake valued at $8.7 million. Royce & Associates, GMT Capital, and PDT Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that 3D Systems Corporation (NYSE:DDD) has experienced a decline in interest from the smart money, logic holds that there exists a select few money managers that slashed their entire stakes last quarter. It's worth mentioning that Renaissance Technologies said goodbye to the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $4 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as 3D Systems Corporation (NYSE:DDD) but similarly valued. These stocks are NanoString Technologies Inc (NASDAQ:NSTG), TTM Technologies, Inc. (NASDAQ:TTMI), Granite Point Mortgage Trust Inc. (NYSE:GPMT), and Xperi Corporation (NASDAQ:XPER). All of these stocks' market caps resemble DDD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSTG,20,210626,-2 TTMI,9,18782,-4 GPMT,9,20565,-3 XPER,21,110729,-2 Average,14.75,90176,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $39 million in DDD's case. Xperi Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand TTM Technologies, Inc. (NASDAQ:TTMI) is the least popular one with only 9 bullish hedge fund positions. 3D Systems Corporation (NYSE:DDD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DDD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DDD investors were disappointed as the stock returned -10.4% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.