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Hedge Funds Cashing Out Of Synopsys, Inc. (SNPS)

In this article we will check out the progression of hedge fund sentiment towards Synopsys, Inc. (NASDAQ:SNPS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Synopsys, Inc. (NASDAQ:SNPS) a buy here? Prominent investors are in a bearish mood. The number of bullish hedge fund positions dropped by 14 lately. Our calculations also showed that SNPS 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.

Crispin Odey of Odey Asset Management Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades 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 take a glance at the latest hedge fund action encompassing Synopsys, Inc. (NASDAQ:SNPS).

How have hedgies been trading Synopsys, Inc. (NASDAQ:SNPS)?

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in SNPS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Synopsys, Inc. (NASDAQ:SNPS) was held by Alkeon Capital Management, which reported holding $307.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $83 million position. Other investors bullish on the company included Newbrook Capital Advisors, Polar Capital, and Kerrisdale Capital. In terms of the portfolio weights assigned to each position Newbrook Capital Advisors allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 8.49% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, dishing out 5.68 percent of its 13F equity portfolio to SNPS.

Judging by the fact that Synopsys, Inc. (NASDAQ:SNPS) has experienced bearish sentiment from hedge fund managers, we can see that there were a few funds that decided to sell off their entire stakes last quarter. Intriguingly, Renaissance Technologies dropped the largest position of the 750 funds watched by Insider Monkey, worth close to $30.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $11.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 14 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Synopsys, Inc. (NASDAQ:SNPS). These stocks are Twitter Inc (NYSE:TWTR), Ford Motor Company (NYSE:F), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), and STMicroelectronics N.V. (NYSE:STM). This group of stocks’ market values are similar to SNPS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TWTR 55 990334 0
F 33 667079 -3
TLK 7 151891 -1
STM 11 70106 -6
Average 26.5 469853 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $470 million. That figure was $726 million in SNPS’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 7 bullish hedge fund positions. Synopsys, Inc. (NASDAQ:SNPS) 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 SNPS as the stock returned 40.5% 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.