We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Synopsys, Inc. (NASDAQ:SNPS) and determine whether hedge funds skillfully traded this stock.
Is Synopsys, Inc. (NASDAQ:SNPS) the right investment to pursue these days? Hedge funds were buying. The number of long hedge fund bets advanced by 3 in recent months. Synopsys, Inc. (NASDAQ:SNPS) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 45. Our calculations also showed that SNPS 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). There were 31 hedge funds in our database with SNPS positions at the end of the first quarter. 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.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. 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. With all of this in mind let's take a glance at the recent hedge fund action regarding Synopsys, Inc. (NASDAQ:SNPS).
Hedge fund activity in Synopsys, Inc. (NASDAQ:SNPS)
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2020. By comparison, 42 hedge funds held shares or bullish call options in SNPS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Synopsys, Inc. (NASDAQ:SNPS), which was worth $465 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $75.9 million worth of shares. Newbrook Capital Advisors, Polar Capital, and Hitchwood 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 Crestwood Capital Management allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 7.16% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to SNPS.
Now, key hedge funds have jumped into Synopsys, Inc. (NASDAQ:SNPS) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most outsized position in Synopsys, Inc. (NASDAQ:SNPS). LMR Partners had $14.6 million invested in the company at the end of the quarter. Zach Schreiber's Point State Capital also initiated a $8.2 million position during the quarter. The other funds with brand new SNPS positions are Joel Greenblatt's Gotham Asset Management, Lee Ainslie's Maverick Capital, and Paul Tudor Jones's Tudor Investment Corp.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Synopsys, Inc. (NASDAQ:SNPS) but similarly valued. We will take a look at Brown-Forman Corporation (NYSE:BF), Chipotle Mexican Grill, Inc. (NYSE:CMG), The Travelers Companies Inc (NYSE:TRV), ZTO Express (Cayman) Inc. (NYSE:ZTO), Eversource Energy (NYSE:ES), Capital One Financial Corp. (NYSE:COF), and Amphenol Corporation (NYSE:APH). This group of stocks' market caps are similar to SNPS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BF,28,521945,0 CMG,41,3780591,-7 TRV,28,398629,-1 ZTO,18,715518,3 ES,28,501377,2 COF,55,1908354,5 APH,42,1013347,0 Average,34.3,1262823,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1263 million. That figure was $931 million in SNPS's case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 18 bullish hedge fund positions. Synopsys, Inc. (NASDAQ:SNPS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SNPS is 52.3. 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 beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on SNPS, though not to the same extent, as the stock returned 13.5% during the first two months of Q3 and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.