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Hedge Funds Are Selling Ciena Corporation (CIEN)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Ciena Corporation (NYSE:CIEN).

Is Ciena Corporation (NYSE:CIEN) a buy right now? Investors who are in the know are turning less bullish. The number of long hedge fund bets decreased by 7 in recent months. Our calculations also showed that CIEN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CIEN was in 29 hedge funds’ portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with CIEN holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding Ciena Corporation (NYSE:CIEN).

Hedge fund activity in Ciena Corporation (NYSE:CIEN)

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in CIEN a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

CIEN_dec2019

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Ciena Corporation (NYSE:CIEN), worth close to $118.6 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $93.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism contain David E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Ciena Corporation (NYSE:CIEN), around 5.32% of its portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, designating 4.53 percent of its 13F equity portfolio to CIEN.

Since Ciena Corporation (NYSE:CIEN) has witnessed bearish sentiment from hedge fund managers, logic holds that there is a sect of hedgies who sold off their full holdings in the third quarter. Intriguingly, Brandon Haley’s Holocene Advisors dumped the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $53.4 million in stock. Peter Muller’s fund, PDT Partners, also sold off its stock, about $10.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Ciena Corporation (NYSE:CIEN). We will take a look at Anaplan, Inc. (NYSE:PLAN), Owl Rock Capital Corporation (NYSE:ORCC), Brixmor Property Group Inc (NYSE:BRX), and Healthcare Trust Of America Inc (NYSE:HTA). This group of stocks’ market values match CIEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLAN 42 2009371 5
ORCC 6 141871 6
BRX 16 118738 1
HTA 18 270702 5
Average 20.5 635171 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $489 million in CIEN’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Owl Rock Capital Corporation (NYSE:ORCC) is the least popular one with only 6 bullish hedge fund positions. Ciena Corporation (NYSE:CIEN) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CIEN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CIEN were disappointed as the stock returned -3.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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