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Did Hedge Funds Make The Right Call On Coherent, Inc. (COHR)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Coherent, Inc. (NASDAQ:COHR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Coherent, Inc. (NASDAQ:COHR) was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. COHR investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. There were 28 hedge funds in our database with COHR holdings at the end of the previous quarter. Our calculations also showed that COHR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to go over the key hedge fund action encompassing Coherent, Inc. (NASDAQ:COHR).

What have hedge funds been doing with Coherent, Inc. (NASDAQ:COHR)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards COHR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Coherent, Inc. (NASDAQ:COHR) was held by Royce & Associates, which reported holding $55.6 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $42.5 million position. Other investors bullish on the company included BeaconLight Capital, Balyasny Asset Management, and Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position BeaconLight Capital allocated the biggest weight to Coherent, Inc. (NASDAQ:COHR), around 6.13% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, earmarking 1.81 percent of its 13F equity portfolio to COHR.

Because Coherent, Inc. (NASDAQ:COHR) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of funds who sold off their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $24.9 million in stock, and Leon Shaulov’s Maplelane Capital was right behind this move, as the fund dropped about $20 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Coherent, Inc. (NASDAQ:COHR). These stocks are Viavi Solutions Inc (NASDAQ:VIAV), CRISPR Therapeutics AG (NASDAQ:CRSP), Inovalon Holdings Inc (NASDAQ:INOV), and Radian Group Inc (NYSE:RDN). This group of stocks’ market values are similar to COHR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIAV 31 305459 -6
CRSP 31 197848 1
INOV 15 71699 -1
RDN 28 121169 -1
Average 26.25 174044 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $173 million in COHR’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 15 bullish hedge fund positions. Coherent, Inc. (NASDAQ:COHR) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on COHR, though not to the same extent, as the stock returned 23.1% during the second quarter and outperformed the market.

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