Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like AudioCodes Ltd. (NASDAQ:AUDC).
AudioCodes Ltd. (NASDAQ:AUDC) was in 14 hedge funds’ portfolios at the end of March. AUDC investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 11 hedge funds in our database with AUDC holdings at the end of the previous quarter. Our calculations also showed that AUDC isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a look at the new hedge fund action regarding AudioCodes Ltd. (NASDAQ:AUDC).
What have hedge funds been doing with AudioCodes Ltd. (NASDAQ:AUDC)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in AUDC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in AudioCodes Ltd. (NASDAQ:AUDC), which was worth $6.1 million at the end of the first quarter. On the second spot was G2 Investment Partners Management which amassed $5.8 million worth of shares. Moreover, Navellier & Associates, D E Shaw, and Renaissance Technologies were also bullish on AudioCodes Ltd. (NASDAQ:AUDC), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. G2 Investment Partners Management, managed by Josh Goldberg, assembled the most outsized position in AudioCodes Ltd. (NASDAQ:AUDC). G2 Investment Partners Management had $5.8 million invested in the company at the end of the quarter. Mark Broach’s Manatuck Hill Partners also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Talpins’s Element Capital Management, Ronald Hua’s Qtron Investments, and Ken Griffin’s Citadel Investment Group.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AudioCodes Ltd. (NASDAQ:AUDC) but similarly valued. These stocks are Century Bancorp, Inc. (NASDAQ:CNBKA), Ultra Clean Holdings Inc (NASDAQ:UCTT), ImmunoGen, Inc. (NASDAQ:IMGN), and TCR2 Therapeutics Inc. (NASDAQ:TCRR). All of these stocks’ market caps match AUDC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNBKA | 2 | 11330 | -1 |
| UCTT | 9 | 45721 | -1 |
| IMGN | 16 | 69185 | 0 |
| TCRR | 5 | 39383 | 5 |
| Average | 8 | 41405 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $22 million in AUDC’s case. ImmunoGen, Inc. (NASDAQ:IMGN) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 2 bullish hedge fund positions. AudioCodes Ltd. (NASDAQ:AUDC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on AUDC as the stock returned 13.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
