We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Allot Ltd. (NASDAQ:ALLT).
Allot Ltd. (NASDAQ:ALLT) investors should be aware of a decrease in support from the world's most elite money managers lately. Our calculations also showed that ALLT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's take a peek at the new hedge fund action regarding Allot Ltd. (NASDAQ:ALLT).
What have hedge funds been doing with Allot Ltd. (NASDAQ:ALLT)?
At Q2's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in ALLT a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Lynrock Lake, managed by Cynthia Paul, holds the number one position in Allot Ltd. (NASDAQ:ALLT). Lynrock Lake has a $32.9 million position in the stock, comprising 5.4% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies holding a $12.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism consist of Peter A. Wright's P.A.W. CAPITAL PARTNERS, Richard Mashaal's Rima Senvest Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Seeing as Allot Ltd. (NASDAQ:ALLT) has experienced bearish sentiment from hedge fund managers, it's easy to see that there exists a select few money managers that decided to sell off their positions entirely heading into Q3. Interestingly, Matthew Hulsizer's PEAK6 Capital Management dumped the biggest investment of the 750 funds followed by Insider Monkey, valued at close to $1.2 million in call options. Ken Griffin's fund, Citadel Investment Group, also cut its call options, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Allot Ltd. (NASDAQ:ALLT). We will take a look at Great Ajax Corp (NYSE:AJX), GP Strategies Corporation (NYSE:GPX), Dynavax Technologies Corporation (NASDAQ:DVAX), and Protective Insurance Corporation (NASDAQ:PTVCB). This group of stocks' market caps resemble ALLT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AJX,8,17366,4 GPX,13,113911,1 DVAX,12,43367,-4 PTVCB,5,21097,-2 Average,9.5,48935,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $55 million in ALLT's case. GP Strategies Corporation (NYSE:GPX) is the most popular stock in this table. On the other hand Protective Insurance Corporation (NASDAQ:PTVCB) is the least popular one with only 5 bullish hedge fund positions. Allot Ltd. (NASDAQ:ALLT) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on ALLT as the stock returned 11.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.