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NetScout Systems, Inc. (NTCT): Are Hedge Funds Right About This Stock?

Abigail Fisher

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded NetScout Systems, Inc. (NASDAQ:NTCT) based on those filings.

NetScout Systems, Inc. (NASDAQ:NTCT) investors should be aware of a decrease in support from the world's most elite money managers of late. NTCT was in 12 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with NTCT positions at the end of the previous quarter. Our calculations also showed that NTCT 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26357" align="aligncenter" width="359"] Ken Fisher of Fisher Asset Management[/caption]

FISHER ASSET MANAGEMENT
FISHER ASSET MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a gander at the fresh hedge fund action regarding NetScout Systems, Inc. (NASDAQ:NTCT).

What have hedge funds been doing with NetScout Systems, Inc. (NASDAQ:NTCT)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NTCT over the last 17 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of NetScout Systems, Inc. (NASDAQ:NTCT), with a stake worth $58.3 million reported as of the end of September. Trailing Fisher Asset Management was D E Shaw, which amassed a stake valued at $21.4 million. Arrowstreet Capital, Millennium Management, and GLG Partners 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 Fisher Asset Management allocated the biggest weight to NetScout Systems, Inc. (NASDAQ:NTCT), around 0.06% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to NTCT.

Since NetScout Systems, Inc. (NASDAQ:NTCT) has witnessed falling interest from the smart money, it's safe to say that there was a specific group of hedge funds who were dropping their entire stakes in the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace cut the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at about $2.9 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund said goodbye to about $1.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to NetScout Systems, Inc. (NASDAQ:NTCT). These stocks are Essential Properties Realty Trust, Inc. (NYSE:EPRT), Northwest Bancshares, Inc. (NASDAQ:NWBI), ForeScout Technologies, Inc. (NASDAQ:FSCT), and Cavco Industries, Inc. (NASDAQ:CVCO). All of these stocks' market caps match NTCT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPRT,15,110452,0 NWBI,18,67833,5 FSCT,19,281431,1 CVCO,19,171104,3 Average,17.75,157705,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $100 million in NTCT's case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks NetScout Systems, Inc. (NASDAQ:NTCT) is even less popular than EPRT. 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. A small number of hedge funds were also right about betting on NTCT, though not to the same extent, as the stock returned 9.3% during the fourth quarter (through 11/30) and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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