Were Hedge Funds Right About Keysight Technologies Inc (KEYS) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Keysight Technologies Inc (NYSE:KEYS) and determine whether the smart money was really smart about this stock.

Is Keysight Technologies Inc (NYSE:KEYS) going to take off soon? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions fell by 9 lately. Our calculations also showed that KEYS 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). KEYS was in 40 hedge funds’ portfolios at the end of the first quarter of 2020. There were 49 hedge funds in our database with KEYS 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now let’s review the new hedge fund action regarding Keysight Technologies Inc (NYSE:KEYS).

Hedge fund activity in Keysight Technologies Inc (NYSE:KEYS)

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in KEYS a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Southport Management was the largest shareholder of Keysight Technologies Inc (NYSE:KEYS), with a stake worth $418.4 million reported as of the end of September. Trailing Southport Management was Ariel Investments, which amassed a stake valued at $100.7 million. Holocene Advisors, Citadel Investment Group, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Keysight Technologies Inc (NYSE:KEYS), around 4.74% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, dishing out 4.66 percent of its 13F equity portfolio to KEYS.

Due to the fact that Keysight Technologies Inc (NYSE:KEYS) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. It’s worth mentioning that Baker Burleson and Stormy Scott’s Banbury Partners cut the biggest position of the “upper crust” of funds watched by Insider Monkey, worth about $28.7 million in stock, and Michael Rockefeller and KarláKroeker’s Woodline Partners was right behind this move, as the fund cut about $25.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 9 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Keysight Technologies Inc (NYSE:KEYS). We will take a look at Nasdaq, Inc. (NASDAQ:NDAQ), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Corning Incorporated (NYSE:GLW), and Arista Networks Inc (NYSE:ANET). This group of stocks’ market values match KEYS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDAQ 26 112042 1
ODFL 33 347639 -1
GLW 30 106293 -5
ANET 24 470614 -2
Average 28.25 259147 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $991 million in KEYS’s case. Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Keysight Technologies Inc (NYSE:KEYS) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on KEYS, though not to the same extent, as the stock returned 20.4% in Q2 and outperformed the market as well.

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