Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's analyze whether NetScout Systems, Inc. (NASDAQ:NTCT) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
NetScout Systems, Inc. (NASDAQ:NTCT) has experienced an increase in hedge fund interest in recent months. NTCT was in 20 hedge funds' portfolios at the end of December. 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
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' 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 41 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.
[caption id="attachment_338189" align="aligncenter" width="399"] Jason Ader of Cumberland Associates / Springowl Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager's coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a peek at the new hedge fund action regarding NetScout Systems, Inc. (NASDAQ:NTCT).
How are hedge funds trading NetScout Systems, Inc. (NASDAQ:NTCT)?
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NTCT over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in NetScout Systems, Inc. (NASDAQ:NTCT), which was worth $46 million at the end of the third quarter. On the second spot was D E Shaw which amassed $29.2 million worth of shares. Arrowstreet Capital, Citadel Investment Group, 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 Cumberland Associates / Springowl Associates allocated the biggest weight to NetScout Systems, Inc. (NASDAQ:NTCT), around 0.87% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to NTCT.
As industrywide interest jumped, some big names were breaking ground themselves. Cumberland Associates / Springowl Associates, managed by Andrew Wallach and Jason Ader, initiated the biggest position in NetScout Systems, Inc. (NASDAQ:NTCT). Cumberland Associates / Springowl Associates had $0.8 million invested in the company at the end of the quarter. Qing Li's Sciencast Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Cliff Asness's AQR Capital Management, Matthew Tewksbury's Stevens Capital Management, and Joel Greenblatt's Gotham Asset Management.
Let's go over hedge fund activity in other stocks similar to NetScout Systems, Inc. (NASDAQ:NTCT). We will take a look at Principia Biopharma Inc. (NASDAQ:PRNB), Masonite International Corp (NYSE:DOOR), Skyline Champion Corporation (NYSE:SKY), and Zymeworks Inc. (NYSE:ZYME). This group of stocks' market valuations resemble NTCT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRNB,20,555851,8 DOOR,21,422459,3 SKY,26,286701,-1 ZYME,24,667083,8 Average,22.75,483024,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $483 million. That figure was $111 million in NTCT's case. Skyline Champion Corporation (NYSE:SKY) is the most popular stock in this table. On the other hand Principia Biopharma Inc. (NASDAQ:PRNB) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks NetScout Systems, Inc. (NASDAQ:NTCT) is even less popular than PRNB. Hedge funds clearly dropped the ball on NTCT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on NTCT as the stock returned 8.6% during the same time period and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.