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Hedge Funds Are Betting On Cadence Design Systems Inc (CDNS)

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Cadence Design Systems Inc (NASDAQ:CDNS) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that CDNS isn’t among the 30 most popular stocks among hedge funds.

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’ 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

We’re going to take a gander at the new hedge fund action regarding Cadence Design Systems Inc (NASDAQ:CDNS).

How are hedge funds trading Cadence Design Systems Inc (NASDAQ:CDNS)?

At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 45% from the second quarter of 2018. On the other hand, there were a total of 23 hedge funds with a bullish position in CDNS at the beginning of this year. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

CDNS Hedge Fund Sentiment

When looking at the institutional investors followed by Insider Monkey, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the most valuable position in Cadence Design Systems Inc (NASDAQ:CDNS). Alkeon Capital Management has a $249.8 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $233.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Noam Gottesman’s GLG Partners and D. E. Shaw’s D E Shaw.

Now, specific money managers were leading the bulls’ herd. Stevens Capital Management, managed by Matthew Tewksbury, established the biggest position in Cadence Design Systems Inc (NASDAQ:CDNS). Stevens Capital Management had $10.4 million invested in the company at the end of the quarter. Ernest Chow and Jonathan Howe’s Sensato Capital Management also initiated a $3.5 million position during the quarter. The other funds with new positions in the stock are George Hall’s Clinton Group, Alec Litowitz and Ross Laser’s Magnetar Capital, and Bruce Kovner’s Caxton Associates LP.

Let’s now take a look at hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). We will take a look at Expeditors International of Washington (NASDAQ:EXPD), International Flavors & Fragrances Inc (NYSE:IFF), Elanco Animal Health Incorporated (NYSE:ELAN), and Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH). This group of stocks’ market valuations match CDNS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXPD 22 709696 -6
IFF 22 412418 1
ELAN 36 368441 36
NCLH 41 1012743 12
Average 30.25 625825 10.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $625.83 billion. That figure was $1.31 billion in CDNS’s case. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is the most popular stock in this table. On the other hand Expeditors International of Washington (NASDAQ:EXPD) is the least popular one with only 22 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NCLH might be a better candidate to consider a long position.

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

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