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Were Hedge Funds Right About Teradyne, Inc. (TER)?

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million 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 June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Teradyne, Inc. (NASDAQ:TER) based on those filings.

Hedge fund interest in Teradyne, Inc. (NASDAQ:TER) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that TER isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare TER to other stocks including The Hartford Financial Services Group Inc (NYSE:HIG), DISH Network Corp. (NASDAQ:DISH), and Qorvo Inc (NASDAQ:QRVO) to get a better sense of its popularity.

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

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Ray Dalio of Bridgewater Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to analyze the key hedge fund action encompassing Teradyne, Inc. (NASDAQ:TER).

Do Hedge Funds Think TER Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in TER a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Alkeon Capital Management was the largest shareholder of Teradyne, Inc. (NASDAQ:TER), with a stake worth $533.7 million reported as of the end of June. Trailing Alkeon Capital Management was ARK Investment Management, which amassed a stake valued at $373 million. Millennium Management, D E Shaw, and Woodline 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 Newbrook Capital Advisors allocated the biggest weight to Teradyne, Inc. (NASDAQ:TER), around 2.91% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, setting aside 2.71 percent of its 13F equity portfolio to TER.

Seeing as Teradyne, Inc. (NASDAQ:TER) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of fund managers that elected to cut their positions entirely by the end of the second quarter. Interestingly, Xiuping Li's Opti Capital Management dropped the largest stake of all the hedgies followed by Insider Monkey, worth about $89.3 million in stock. Renaissance Technologies, also dumped its stock, about $39.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Teradyne, Inc. (NASDAQ:TER). We will take a look at The Hartford Financial Services Group Inc (NYSE:HIG), DISH Network Corp. (NASDAQ:DISH), Qorvo Inc (NASDAQ:QRVO), Cheniere Energy, Inc. (NYSE:LNG), Martin Marietta Materials, Inc. (NYSE:MLM), Edison International (NYSE:EIX), and Extra Space Storage, Inc. (NYSE:EXR). This group of stocks' market values are similar to TER's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIG,43,1468819,-14 DISH,51,2543355,0 QRVO,40,2300268,-1 LNG,49,2944377,9 MLM,34,2014762,-7 EIX,18,1386816,-17 EXR,21,176013,-7 Average,36.6,1833487,-5.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1833 million. That figure was $1687 million in TER's case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 18 bullish hedge fund positions. Teradyne, Inc. (NASDAQ:TER) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TER is 72.5. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately TER wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TER were disappointed as the stock returned 7.7% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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