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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards ANSYS, Inc. (NASDAQ:ANSS).
Is ANSYS, Inc. (NASDAQ:ANSS) a good investment right now? Money managers were in an optimistic mood. The number of long hedge fund positions went up by 9 recently. ANSYS, Inc. (NASDAQ:ANSS) was in 40 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ANSS 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 ANSS holdings at the end of March.
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.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we're going to take a look at the recent hedge fund action encompassing ANSYS, Inc. (NASDAQ:ANSS).
What have hedge funds been doing with ANSYS, Inc. (NASDAQ:ANSS)?
At Q2's end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ANSS over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ANSYS, Inc. (NASDAQ:ANSS) was held by Select Equity Group, which reported holding $221.2 million worth of stock at the end of June. It was followed by Ako Capital with a $202.8 million position. Other investors bullish on the company included Akre Capital Management, Alkeon Capital Management, and Impax Asset Management. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to ANSYS, Inc. (NASDAQ:ANSS), around 7.55% of its 13F portfolio. Intermede Investment Partners is also relatively very bullish on the stock, setting aside 4.69 percent of its 13F equity portfolio to ANSS.
As one would reasonably expect, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in ANSYS, Inc. (NASDAQ:ANSS). Balyasny Asset Management had $27.8 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also made a $13.8 million investment in the stock during the quarter. The other funds with brand new ANSS positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, and David Harding's Winton Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ANSYS, Inc. (NASDAQ:ANSS) but similarly valued. These stocks are Okta, Inc. (NASDAQ:OKTA), HP Inc. (NYSE:HPQ), McKesson Corporation (NYSE:MCK), Public Service Enterprise Group Incorporated (NYSE:PEG), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Credit Suisse Group AG (NYSE:CS), and Nokia Corporation (NYSE:NOK). This group of stocks' market valuations resemble ANSS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OKTA,60,1990664,12 HPQ,35,1106876,-8 MCK,61,1958790,-2 PEG,31,649382,-3 ALXN,57,3577628,1 CS,14,134420,3 NOK,26,218711,3 Average,40.6,1376639,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.6 hedge funds with bullish positions and the average amount invested in these stocks was $1377 million. That figure was $1323 million in ANSS's case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 bullish hedge fund positions. ANSYS, Inc. (NASDAQ:ANSS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ANSS is 67.7. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately ANSS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ANSS investors were disappointed as the stock returned 4.3% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.