It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in NetApp Inc. (NASDAQ:NTAP).
Is NetApp Inc. (NASDAQ:NTAP) worth your attention right now? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund bets retreated by 2 in recent months. Our calculations also showed that NTAP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action regarding NetApp Inc. (NASDAQ:NTAP).
Hedge fund activity in NetApp Inc. (NASDAQ:NTAP)
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in NTAP a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in NetApp Inc. (NASDAQ:NTAP) was held by Renaissance Technologies, which reported holding $355.4 million worth of stock at the end of September. It was followed by D E Shaw with a $108.8 million position. Other investors bullish on the company included Two Sigma Advisors, GLG Partners, and Bristol Gate Capital Partners. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to NetApp Inc. (NASDAQ:NTAP), around 4.98% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, setting aside 1.92 percent of its 13F equity portfolio to NTAP.
Due to the fact that NetApp Inc. (NASDAQ:NTAP) has experienced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers that decided to sell off their positions entirely heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace sold off the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $29.1 million in stock. Ray Dalio’s fund, Bridgewater Associates, also said goodbye to its stock, about $28.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to NetApp Inc. (NASDAQ:NTAP). We will take a look at Molson Coors Brewing Company (NYSE:TAP), IDEX Corporation (NYSE:IEX), Jacobs Engineering Group Inc (NYSE:JEC), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks’ market caps resemble NTAP’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $599 million. That figure was $736 million in NTAP’s case. Jacobs Engineering Group Inc (NYSE:JEC) is the most popular stock in this table. On the other hand IDEX Corporation (NYSE:IEX) is the least popular one with only 19 bullish hedge fund positions. NetApp Inc. (NASDAQ:NTAP) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on NTAP as the stock returned 16.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.