Did Hedge Funds Make The Right Call On IPG Photonics Corporation (IPGP) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded IPG Photonics Corporation (NASDAQ:IPGP) and determine whether the smart money was really smart about this stock.

IPG Photonics Corporation (NASDAQ:IPGP) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. IPGP has experienced a decrease in hedge fund sentiment lately. There were 25 hedge funds in our database with IPGP positions at the end of the previous quarter. Our calculations also showed that IPGP 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this under-the-radar 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. Now we’re going to analyze the fresh hedge fund action regarding IPG Photonics Corporation (NASDAQ:IPGP).

How are hedge funds trading IPG Photonics Corporation (NASDAQ:IPGP)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in IPGP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Impax Asset Management held the most valuable stake in IPG Photonics Corporation (NASDAQ:IPGP), which was worth $37 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $23.6 million worth of shares. Fisher Asset Management, Two Sigma Advisors, and Motley Fool Asset Management 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 Tenzing Global Investors allocated the biggest weight to IPG Photonics Corporation (NASDAQ:IPGP), around 5.02% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, dishing out 2.08 percent of its 13F equity portfolio to IPGP.

Seeing as IPG Photonics Corporation (NASDAQ:IPGP) has experienced declining sentiment from the smart money, we can see that there was a specific group of hedge funds who sold off their full holdings last quarter. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $17 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $13.8 million worth. These transactions are interesting, as total hedge fund interest fell by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to IPG Photonics Corporation (NASDAQ:IPGP). We will take a look at Natura &Co Holding S.A. (NYSE:NTCO), Proofpoint Inc (NASDAQ:PFPT), Generac Holdings Inc. (NYSE:GNRC), and Bunge Limited (NYSE:BG). This group of stocks’ market caps are similar to IPGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTCO 8 66680 8
PFPT 27 315504 -8
GNRC 29 192057 -3
BG 39 543155 2
Average 25.75 279349 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $150 million in IPGP’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 8 bullish hedge fund positions. IPG Photonics Corporation (NASDAQ:IPGP) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on IPGP as the stock returned 66% since the end of March and outperformed the market by an even larger margin.

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