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Were Hedge Funds Right About Souring On 3D Systems Corporation (DDD)?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thought3D Systems Corporation (NYSE:DDD) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

3D Systems Corporation (NYSE:DDD) was in 18 hedge funds’ portfolios at the end of March. DDD has seen a decrease in support from the world’s most elite money managers lately. There were 19 hedge funds in our database with DDD holdings at the end of the previous quarter. Our calculations also showed that DDD 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).

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.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the new hedge fund action regarding 3D Systems Corporation (NYSE:DDD).

What does smart money think about 3D Systems Corporation (NYSE:DDD)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DDD over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D E Shaw held the most valuable stake in 3D Systems Corporation (NYSE:DDD), which was worth $36.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $8.7 million worth of shares. Coatue Management, Citadel Investment Group, and Royce & Associates 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 Weld Capital Management allocated the biggest weight to 3D Systems Corporation (NYSE:DDD), around 0.14% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to DDD.

Since 3D Systems Corporation (NYSE:DDD) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that elected to cut their full holdings in the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $3.9 million in stock. Richard SchimeláandáLawrence Sapanski’s fund, Cinctive Capital Management, also cut its stock, about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to 3D Systems Corporation (NYSE:DDD). We will take a look at Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Zuora, Inc. (NYSE:ZUO), Scientific Games Corp (NASDAQ:SGMS), and Trupanion Inc (NASDAQ:TRUP). This group of stocks’ market values are similar to DDD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVMI 10 157943 0
ZUO 23 102623 -3
SGMS 22 226145 -11
TRUP 13 140895 0
Average 17 156902 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $64 million in DDD’s case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is the least popular one with only 10 bullish hedge fund positions. 3D Systems Corporation (NYSE:DDD) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately DDD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DDD were disappointed as the stock returned -11.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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