Do Hedge Funds Love Aspen Technology, Inc. (AZPN)?

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Aspen Technology, Inc. (NASDAQ:AZPN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Aspen Technology, Inc. (NASDAQ:AZPN) an excellent investment now? Hedge funds were becoming more confident. The number of long hedge fund bets moved up by 8 in recent months. Aspen Technology, Inc. (NASDAQ:AZPN) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. Our calculations also showed that AZPN 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 20 hedge funds in our database with AZPN holdings at the end of March.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. 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. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. With all of this in mind let’s view the recent hedge fund action encompassing Aspen Technology, Inc. (NASDAQ:AZPN).

Hedge fund activity in Aspen Technology, Inc. (NASDAQ:AZPN)

At Q2’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the first quarter of 2020. By comparison, 26 hedge funds held shares or bullish call options in AZPN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is AZPN A Good Stock To Buy?

The largest stake in Aspen Technology, Inc. (NASDAQ:AZPN) was held by BlueSpruce Investments, which reported holding $220.6 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $177.3 million position. Other investors bullish on the company included Two Creeks Capital Management, Fisher Asset Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to Aspen Technology, Inc. (NASDAQ:AZPN), around 10.74% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, designating 6.37 percent of its 13F equity portfolio to AZPN.

Now, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Aspen Technology, Inc. (NASDAQ:AZPN). Balyasny Asset Management had $1.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $1.4 million investment in the stock during the quarter. The other funds with brand new AZPN positions are John Overdeck and David Siegel’s Two Sigma Advisors, Donald Sussman’s Paloma Partners, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Aspen Technology, Inc. (NASDAQ:AZPN) but similarly valued. These stocks are Alleghany Corporation (NYSE:Y), News Corp (NASDAQ:NWSA), Genpact Limited (NYSE:G), Vereit Inc (NYSE:VER), Service Corporation International (NYSE:SCI), Howmet Aerospace Inc. (NYSE:HWM), and Solaredge Technologies Inc (NASDAQ:SEDG). This group of stocks’ market values resemble AZPN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
Y 31 270939 6
NWSA 24 342184 -4
G 29 319870 -5
VER 23 491001 5
SCI 27 524384 -3
HWM 30 2360525 5
SEDG 25 435719 -2
Average 27 677803 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $678 million. That figure was $878 million in AZPN’s case. Alleghany Corporation (NYSE:Y) is the most popular stock in this table. On the other hand Vereit Inc (NYSE:VER) is the least popular one with only 23 bullish hedge fund positions. Aspen Technology, Inc. (NASDAQ:AZPN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AZPN is 64. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on AZPN as the stock returned 23.3% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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