Should I Avoid IPG Photonics Corporation (IPGP)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards IPG Photonics Corporation (NASDAQ:IPGP).

IPG Photonics Corporation (NASDAQ:IPGP) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. IPG Photonics Corporation (NASDAQ:IPGP) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistic is 31. There were 31 hedge funds in our database with IPGP holdings at the end of March. Our calculations also showed that IPGP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Ray Dalio of Bridgewater Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s go over the key hedge fund action regarding IPG Photonics Corporation (NASDAQ:IPGP).

Do Hedge Funds Think IPGP Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards IPGP over the last 24 quarters. So, let’s review 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, Terry Smith’s Fundsmith LLP has the number one position in IPG Photonics Corporation (NASDAQ:IPGP), worth close to $133.5 million, accounting for 0.4% of its total 13F portfolio. Coming in second is Impax Asset Management, managed by Ian Simm, which holds a $128.9 million position; 0.6% of its 13F portfolio is allocated to the company. Some other peers that hold long positions comprise Chuck Royce’s Royce & Associates, Ken Fisher’s Fisher Asset Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Motley Fool Asset Management allocated the biggest weight to IPG Photonics Corporation (NASDAQ:IPGP), around 0.69% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.57 percent of its 13F equity portfolio to IPGP.

Judging by the fact that IPG Photonics Corporation (NASDAQ:IPGP) has faced falling interest from the smart money, logic holds that there were a few hedgies that decided to sell off their positions entirely by the end of the second quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $8.4 million in stock, and Andrew Sandler’s Sandler Capital Management was right behind this move, as the fund dumped about $5.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 8 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as IPG Photonics Corporation (NASDAQ:IPGP) but similarly valued. These stocks are Essential Utilities Inc (NYSE:WTRG), Pentair plc (NYSE:PNR), Formula One Group (NASDAQ:FWONK), F5 Networks, Inc. (NASDAQ:FFIV), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Santander Consumer USA Holdings Inc (NYSE:SC), and Levi Strauss & Co. (NYSE:LEVI). This group of stocks’ market values are similar to IPGP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WTRG 13 272737 -6
PNR 25 748622 -5
FWONK 41 1724231 4
FFIV 30 704710 4
KOF 9 461993 -1
SC 26 325714 3
LEVI 30 414270 11
Average 24.9 664611 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $665 million. That figure was $400 million in IPGP’s case. Formula One Group (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 9 bullish hedge fund positions. IPG Photonics Corporation (NASDAQ:IPGP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IPGP is 41.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately IPGP wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IPGP investors were disappointed as the stock returned -23.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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