Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Avid Technology, Inc. (NASDAQ:AVID) a healthy stock for your portfolio? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions went down by 2 recently. Our calculations also showed that AVID isn’t among the 30 most popular stocks among hedge funds (see the video below). AVID was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with AVID positions at the end of the previous quarter.
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the fresh hedge fund action regarding Avid Technology, Inc. (NASDAQ:AVID).
How are hedge funds trading Avid Technology, Inc. (NASDAQ:AVID)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the first quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in AVID 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.
According to Insider Monkey’s hedge fund database, Cove Street Capital, managed by Jeffrey Bronchick, holds the number one position in Avid Technology, Inc. (NASDAQ:AVID). Cove Street Capital has a $26.2 million position in the stock, comprising 3.4% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $13.9 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism comprise Joseph Samuels’s Islet Management, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors.
Because Avid Technology, Inc. (NASDAQ:AVID) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings heading into Q3. It’s worth mentioning that Jonathan Berger’s Birch Grove Capital said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, totaling close to $15 million in stock. Gregg J. Powers’s fund, Private Capital Management, also dumped its stock, about $7.2 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Avid Technology, Inc. (NASDAQ:AVID). These stocks are PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS), Golden Entertainment Inc (NASDAQ:GDEN), Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX), and Vera Bradley, Inc. (NASDAQ:VRA). All of these stocks’ market caps match AVID’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PHAS | 8 | 58573 | 4 |
| GDEN | 11 | 79189 | -1 |
| ELOX | 2 | 3954 | 2 |
| VRA | 16 | 54301 | -2 |
| Average | 9.25 | 49004 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $57 million in AVID’s case. Vera Bradley, Inc. (NASDAQ:VRA) is the most popular stock in this table. On the other hand Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) is the least popular one with only 2 bullish hedge fund positions. Avid Technology, Inc. (NASDAQ:AVID) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVID wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AVID were disappointed as the stock returned -32.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
