Did Hedge Funds Drop The Ball On Teradyne, Inc. (TER) ?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Teradyne, Inc. (NYSE:TER) from the perspective of those elite funds.

Teradyne, Inc. (NYSE:TER) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. TER was in 27 hedge funds’ portfolios at the end of the second quarter of 2019. There were 24 hedge funds in our database with TER positions at the end of the previous quarter. Our calculations also showed that TER isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 analyze the latest hedge fund action surrounding Teradyne, Inc. (NYSE:TER).

Hedge fund activity in Teradyne, Inc. (NYSE:TER)

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TER over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).


The largest stake in Teradyne, Inc. (NYSE:TER) was held by Renaissance Technologies, which reported holding $243.6 million worth of stock at the end of March. It was followed by Alkeon Capital Management with a $132.3 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Citadel Investment Group.

Now, specific money managers have jumped into Teradyne, Inc. (NYSE:TER) headfirst. Masters Capital Management, managed by Mike Masters, initiated the most outsized call position in Teradyne, Inc. (NYSE:TER). Masters Capital Management had $24 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $5.6 million investment in the stock during the quarter. The following funds were also among the new TER investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Hoon Kim’s Quantinno Capital.

Let’s go over hedge fund activity in other stocks similar to Teradyne, Inc. (NYSE:TER). We will take a look at Cypress Semiconductor Corporation (NASDAQ:CY), Caesars Entertainment Corp (NASDAQ:CZR), Pearson PLC (NYSE:PSO), and News Corp (NASDAQ:NWS). All of these stocks’ market caps match TER’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CY 36 1306956 11
CZR 48 3654846 -9
PSO 4 7111 0
NWS 9 40127 -1
Average 24.25 1252260 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $1252 million. That figure was $684 million in TER’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 4 bullish hedge fund positions. Teradyne, Inc. (NYSE:TER) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on TER as the stock returned 21.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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