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Were Hedge Funds Right About Dumping Cadence Design Systems Inc (CDNS)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Cadence Design Systems Inc (NASDAQ:CDNS) the right investment to pursue these days? The best stock pickers are becoming less confident. The number of long hedge fund bets retreated by 3 in recent months. Our calculations also showed that CDNS isn’t among the 30 most popular stocks among hedge funds. CDNS was in 28 hedge funds’ portfolios at the end of June. There were 31 hedge funds in our database with CDNS holdings at the end of the previous quarter.

In the eyes of most shareholders, hedge funds are assumed to be unimportant, old investment tools of yesteryear. While there are more than 8000 funds trading at the moment, Our experts choose to focus on the aristocrats of this club, approximately 750 funds. These money managers command bulk of the smart money’s total asset base, and by shadowing their first-class picks, Insider Monkey has come up with numerous investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Noam Gottesman GLG Partners

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the fresh hedge fund action regarding Cadence Design Systems Inc (NASDAQ:CDNS).

What does smart money think about Cadence Design Systems Inc (NASDAQ:CDNS)?

At Q2’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in CDNS 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.

No of Hedge Funds with CDNS Positions

Among these funds, AQR Capital Management held the most valuable stake in Cadence Design Systems Inc (NASDAQ:CDNS), which was worth $440.8 million at the end of the second quarter. On the second spot was Alkeon Capital Management which amassed $367.4 million worth of shares. Moreover, Arrowstreet Capital, GLG Partners, and Renaissance Technologies were also bullish on Cadence Design Systems Inc (NASDAQ:CDNS), allocating a large percentage of their portfolios to this stock.

Seeing as Cadence Design Systems Inc (NASDAQ:CDNS) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that decided to sell off their positions entirely by the end of the second quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $8.6 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $3.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cadence Design Systems Inc (NASDAQ:CDNS) but similarly valued. We will take a look at AMETEK, Inc. (NYSE:AME), MSCI Inc (NYSE:MSCI), Cheniere Energy Partners LP (NYSE:CQP), and Entergy Corporation (NYSE:ETR). This group of stocks’ market valuations resemble CDNS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AME 31 1065031 2
MSCI 36 774691 0
CQP 7 13732 0
ETR 30 1492309 -3
Average 26 836441 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $836 million. That figure was $1688 million in CDNS’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 7 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CDNS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CDNS were disappointed as the stock returned -6.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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