We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Coherent, Inc. (NASDAQ:COHR) and determine whether hedge funds skillfully traded this stock.
Coherent, Inc. (NASDAQ:COHR) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. COHR investors should be aware of an increase in hedge fund sentiment in recent months. There were 23 hedge funds in our database with COHR holdings at the end of March. Our calculations also showed that COHR 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to go over the fresh hedge fund action encompassing Coherent, Inc. (NASDAQ:COHR).
What does smart money think about Coherent, Inc. (NASDAQ:COHR)?
At second quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COHR over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Coherent, Inc. (NASDAQ:COHR), with a stake worth $64.3 million reported as of the end of September. Trailing Royce & Associates was Fisher Asset Management, which amassed a stake valued at $50.3 million. Electron Capital Partners, BeaconLight Capital, and D E Shaw 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 BeaconLight Capital allocated the biggest weight to Coherent, Inc. (NASDAQ:COHR), around 4.38% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, designating 2.73 percent of its 13F equity portfolio to COHR.
Consequently, key money managers were leading the bulls’ herd. Electron Capital Partners, managed by Jos Shaver, created the most valuable position in Coherent, Inc. (NASDAQ:COHR). Electron Capital Partners had $19.5 million invested in the company at the end of the quarter. Jerry Kochanski’s Shelter Haven Capital Management also initiated a $7.1 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Peter Muller’s PDT Partners, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Coherent, Inc. (NASDAQ:COHR) but similarly valued. We will take a look at Valley National Bancorp (NYSE:VLY), Alarm.com Holdings Inc (NASDAQ:ALRM), Selective Insurance Group (NASDAQ:SIGI), VEON Ltd. (NASDAQ:VEON), Stamps.com Inc. (NASDAQ:STMP), iRhythm Technologies, Inc. (NASDAQ:IRTC), and ACI Worldwide Inc (NASDAQ:ACIW). This group of stocks’ market caps are similar to COHR’s market cap.
|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 19 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $208 million in COHR’s case. Stamps.com Inc. (NASDAQ:STMP) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Coherent, Inc. (NASDAQ:COHR) is more popular among hedge funds. Our overall hedge fund sentiment score for COHR is 87.4. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Unfortunately COHR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COHR were disappointed as the stock returned -16.6% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.