We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Novanta Inc. (NASDAQ:NOVT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Novanta Inc. (NASDAQ:NOVT) a buy here? Investors who are in the know are taking a bullish view. The number of long hedge fund bets improved by 2 in recent months. Our calculations also showed that NOVT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 S&P 500 ETFs by 41 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 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the new hedge fund action encompassing Novanta Inc. (NASDAQ:NOVT).
What does smart money think about Novanta Inc. (NASDAQ:NOVT)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in NOVT a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Paradice Investment Management held the most valuable stake in Novanta Inc. (NASDAQ:NOVT), which was worth $62 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.1 million worth of shares. Thames Capital Management, Royce & Associates, and Navellier & Associates 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 Paradice Investment Management allocated the biggest weight to Novanta Inc. (NASDAQ:NOVT), around 4.32% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, dishing out 1.78 percent of its 13F equity portfolio to NOVT.
Consequently, specific money managers were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in Novanta Inc. (NASDAQ:NOVT). Laurion Capital Management had $0.5 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Novanta Inc. (NASDAQ:NOVT) but similarly valued. We will take a look at TC Pipelines, LP (NYSE:TCP), Hamilton Lane Incorporated (NASDAQ:HLNE), Brooks Automation, Inc. (NASDAQ:BRKS), and Cogent Communications Holdings, Inc. (NASDAQ:CCOI). This group of stocks’ market values match NOVT’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $88 million in NOVT’s case. Brooks Automation, Inc. (NASDAQ:BRKS) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 3 bullish hedge fund positions. Novanta Inc. (NASDAQ:NOVT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on NOVT, though not to the same extent, as the stock returned -18.4% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.