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Were Hedge Funds Right About Flocking Into Novanta Inc. (NOVT) ?

Reymerlyn Martin

At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Novanta Inc. (NASDAQ:NOVT) was in 19 hedge funds' portfolios at the end of December. NOVT investors should be aware of an increase in hedge fund interest recently. There were 17 hedge funds in our database with NOVT positions at the end of the previous quarter. Our calculations also showed that NOVT isn't among the 30 most popular stocks among hedge funds.

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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AlphaOne Capital Partners' Returns, AUM and Holdings

Let's take a gander at the recent hedge fund action encompassing Novanta Inc. (NASDAQ:NOVT).

Hedge fund activity in Novanta Inc. (NASDAQ:NOVT)

At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in NOVT a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

NOVT_apr2019

Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the largest position in Novanta Inc. (NASDAQ:NOVT). Renaissance Technologies has a $33.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Daruma Asset Management, managed by Mariko Gordon, which holds a $31 million position; 4.1% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Andrew Sandler's Sandler Capital Management, Jay Genzer's Thames Capital Management and Paul Hondros's AlphaOne Capital Partners.

As industrywide interest jumped, some big names have jumped into Novanta Inc. (NASDAQ:NOVT) headfirst. Thames Capital Management, managed by Jay Genzer, assembled the largest position in Novanta Inc. (NASDAQ:NOVT). Thames Capital Management had $8.1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.9 million position during the quarter. The other funds with brand new NOVT positions are Joel Greenblatt's Gotham Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Dmitry Balyasny's Balyasny Asset Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Novanta Inc. (NASDAQ:NOVT) but similarly valued. We will take a look at Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Shenandoah Telecommunications Company (NASDAQ:SHEN), South State Corporation (NASDAQ:SSB), and Ellie Mae Inc (NYSE:ELLI). All of these stocks' market caps resemble NOVT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RARE,14,105874,-3 SHEN,11,95482,-3 SSB,14,71136,-1 ELLI,18,504870,3 Average,14.25,194341,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $105 million in NOVT's case. Ellie Mae Inc (NYSE:ELLI) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Novanta Inc. (NASDAQ:NOVT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on NOVT as the stock returned 33.5% 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.

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