Hedge Funds Warming Up To Avid Technology, Inc. (AVID)

In this article you are going to find out whether hedge funds think Avid Technology, Inc. (NASDAQ:AVID) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Avid Technology, Inc. (NASDAQ:AVID) ready to rally soon? Prominent investors are in an optimistic mood. The number of bullish hedge fund positions advanced by 2 recently. Our calculations also showed that AVID 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). AVID was in 15 hedge funds’ portfolios at the end of March. There were 13 hedge funds in our database with AVID holdings at the end of the previous quarter.

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 58 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.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the key hedge fund action regarding Avid Technology, Inc. (NASDAQ:AVID).

How are hedge funds trading Avid Technology, Inc. (NASDAQ:AVID)?

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the fourth quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in AVID a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Avid Technology, Inc. (NASDAQ:AVID) was held by Impactive Capital, which reported holding $26.9 million worth of stock at the end of September. It was followed by Cove Street Capital with a $12.5 million position. Other investors bullish on the company included Royce & Associates, Renaissance Technologies, and AQR Capital Management. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to Avid Technology, Inc. (NASDAQ:AVID), around 11.51% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, designating 4.8 percent of its 13F equity portfolio to AVID.

Consequently, key hedge funds were leading the bulls’ herd. Harbert Management, managed by Raymond J. Harbert, established the most outsized position in Avid Technology, Inc. (NASDAQ:AVID). Harbert Management had $2.9 million invested in the company at the end of the quarter. J. Daniel Plants’s Voce Capital also initiated a $2.4 million position during the quarter. The only other fund with a brand new AVID position is Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Avid Technology, Inc. (NASDAQ:AVID) but similarly valued. We will take a look at Ducommun Incorporated (NYSE:DCO), Matador Resources Co (NYSE:MTDR), CNB Financial Corporation (NASDAQ:CCNE), and Carriage Services, Inc. (NYSE:CSV). This group of stocks’ market valuations are closest to AVID’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCO 11 38961 0
MTDR 17 44417 -6
CCNE 6 20463 0
CSV 11 38774 -1
Average 11.25 35654 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $72 million in AVID’s case. Matador Resources Co (NYSE:MTDR) is the most popular stock in this table. On the other hand CNB Financial Corporation (NASDAQ:CCNE) is the least popular one with only 6 bullish hedge fund positions. Avid Technology, Inc. (NASDAQ:AVID) 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately AVID wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVID were disappointed as the stock returned 8.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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