Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Synopsys, Inc. (NASDAQ:SNPS) to find out whether it was one of their high conviction long-term ideas.
Synopsys, Inc. (NASDAQ:SNPS) was in 31 hedge funds’ portfolios at the end of the first quarter of 2019. SNPS investors should be aware of a decrease in support from the world’s most elite money managers recently. There were 34 hedge funds in our database with SNPS holdings at the end of the previous quarter. Our calculations also showed that SNPS isn’t among the 30 most popular stocks among hedge funds.
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the latest hedge fund action encompassing Synopsys, Inc. (NASDAQ:SNPS).
How are hedge funds 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 -9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SNPS over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Synopsys, Inc. (NASDAQ:SNPS), which was worth $324.8 million at the end of the first quarter. On the second spot was Egerton Capital Limited which amassed $253.3 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Polar Capital were also bullish on Synopsys, Inc. (NASDAQ:SNPS), allocating a large percentage of their portfolios to this stock.
Because Synopsys, Inc. (NASDAQ:SNPS) has experienced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few fund managers that decided to sell off their full holdings last quarter. At the top of the heap, Barry Rosenstein’s JANA Partners sold off the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $38.8 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dropped about $5.3 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Synopsys, Inc. (NASDAQ:SNPS). We will take a look at NetApp Inc. (NASDAQ:NTAP), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Yum China Holdings, Inc. (NYSE:YUMC), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks’ market caps resemble SNPS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTAP | 24 | 973282 | 3 |
| TEVA | 32 | 1713411 | -3 |
| YUMC | 30 | 478911 | 4 |
| CSGP | 32 | 993601 | 9 |
| Average | 29.5 | 1039801 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1040 million. That figure was $1563 million in SNPS’s case. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is the most popular stock in this table. On the other hand NetApp Inc. (NASDAQ:NTAP) is the least popular one with only 24 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SNPS, though not to the same extent, as the stock returned 1.6% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
