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Hedge Funds Cashing Out Of Align Technology, Inc. (ALGN)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Align Technology, Inc. (NASDAQ:ALGN) based on that data.

Align Technology, Inc. (NASDAQ:ALGN) has seen a decrease in hedge fund interest recently. ALGN was in 39 hedge funds’ portfolios at the end of the first quarter of 2020. There were 40 hedge funds in our database with ALGN positions at the end of the previous quarter. Our calculations also showed that ALGN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 51 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.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the new hedge fund action encompassing Align Technology, Inc. (NASDAQ:ALGN).

What have hedge funds been doing with Align Technology, Inc. (NASDAQ:ALGN)?

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALGN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Align Technology, Inc. (NASDAQ:ALGN) was held by Renaissance Technologies, which reported holding $511.1 million worth of stock at the end of September. It was followed by Bares Capital Management with a $269.3 million position. Other investors bullish on the company included Hillhouse Capital Management, Fisher Asset Management, and Valinor Management LLC. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Align Technology, Inc. (NASDAQ:ALGN), around 9.71% of its 13F portfolio. Valinor Management LLC is also relatively very bullish on the stock, dishing out 6.02 percent of its 13F equity portfolio to ALGN.

Due to the fact that Align Technology, Inc. (NASDAQ:ALGN) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds that decided to sell off their positions entirely last quarter. At the top of the heap, Mitchell Blutt’s Consonance Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $75.1 million in stock. Andreas Halvorsen’s fund, Viking Global, also dropped its stock, about $73.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Align Technology, Inc. (NASDAQ:ALGN) but similarly valued. These stocks are Teleflex Incorporated (NYSE:TFX), Avangrid, Inc. (NYSE:AGR), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and M&T Bank Corporation (NYSE:MTB). This group of stocks’ market caps resemble ALGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFX 32 766334 0
AGR 18 242937 -1
TTWO 66 1949928 7
MTB 21 687380 -11
Average 34.25 911645 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $912 million. That figure was $1397 million in ALGN’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 18 bullish hedge fund positions. Align Technology, Inc. (NASDAQ:ALGN) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ALGN as the stock returned 41.2% in Q2 (through the end of May) 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.