We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. 0
Synopsys, Inc. (NASDAQ:SNPS) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Veeva Systems Inc (NYSE:VEEV), Brown-Forman Corporation (NYSE:BF), and Nokia Corporation (NYSE:NOK) to gather more data points. Our calculations also showed that SNPS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 S&P 500 ETFs by 41 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.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the new hedge fund action surrounding Synopsys, Inc. (NASDAQ:SNPS).
What does smart money think about Synopsys, Inc. (NASDAQ:SNPS)?
At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SNPS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the largest position in Synopsys, Inc. (NASDAQ:SNPS), worth close to $352.8 million, comprising 1.3% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $95.4 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish include Paul Marshall and Ian Wace’s Marshall Wace LLP, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Oribel Capital Management allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 3.75% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to SNPS.
Because Synopsys, Inc. (NASDAQ:SNPS) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that elected to cut their entire stakes last quarter. Interestingly, John Armitage’s Egerton Capital Limited said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $122.6 million in stock, and Larry Chen and Terry Zhang’s Tairen Capital was right behind this move, as the fund cut about $22.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Synopsys, Inc. (NASDAQ:SNPS). These stocks are Veeva Systems Inc (NYSE:VEEV), Brown-Forman Corporation (NYSE:BF), Nokia Corporation (NYSE:NOK), and Skyworks Solutions Inc (NASDAQ:SWKS). This group of stocks’ market values are closest to SNPS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VEEV | 44 | 766454 | 8 |
| BF | 23 | 609563 | 1 |
| NOK | 16 | 227900 | -8 |
| SWKS | 43 | 1178499 | 17 |
| Average | 31.5 | 695604 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $1165 million in SNPS’s case. Veeva Systems Inc (NYSE:VEEV) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Synopsys, Inc. (NASDAQ:SNPS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on SNPS as the stock returned -19% so far in Q1 (through March 16th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
