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Were Hedge Funds Illusioned With Cadence Design Systems Inc (CDNS)?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Cadence Design Systems Inc (NASDAQ:CDNS) based on that data and determine whether they were really smart about the stock.

Cadence Design Systems Inc (NASDAQ:CDNS) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds' portfolios at the end of September. Our calculations also showed that CDNS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Roku, Inc. (NASDAQ:ROKU), Schlumberger Limited. (NYSE:SLB), and Lucid Group Inc. (NASDAQ:LCID) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we're going to review the new hedge fund action surrounding Cadence Design Systems Inc (NASDAQ:CDNS).

Andrew Sandler of Sandler Capital Management

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

At Q3's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2021. On the other hand, there were a total of 37 hedge funds with a bullish position 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.

More specifically, Alkeon Capital Management was the largest shareholder of Cadence Design Systems Inc (NASDAQ:CDNS), with a stake worth $792.9 million reported as of the end of September. Trailing Alkeon Capital Management was Impax Asset Management, which amassed a stake valued at $312.5 million. GLG Partners, Arrowstreet Capital, and Citadel Investment Group 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 York Capital Management allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 2.28% of its 13F portfolio. Alkeon Capital Management is also relatively very bullish on the stock, dishing out 1.34 percent of its 13F equity portfolio to CDNS.

Since Cadence Design Systems Inc (NASDAQ:CDNS) has faced a decline in interest from hedge fund managers, it's easy to see that there was a specific group of hedgies that decided to sell off their full holdings last quarter. It's worth mentioning that Ray Dalio's Bridgewater Associates said goodbye to the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $13.2 million in stock. Anand Parekh's fund, Alyeska Investment Group, also said goodbye to its stock, about $12.9 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). We will take a look at Roku, Inc. (NASDAQ:ROKU), Schlumberger Limited. (NYSE:SLB), Lucid Group Inc. (NASDAQ:LCID), Trane Technologies plc (NYSE:TT), Digital Realty Trust, Inc. (NYSE:DLR), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Pioneer Natural Resources Company (NYSE:PXD). All of these stocks' market caps are closest to CDNS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROKU,57,2828579,-4 SLB,39,1062933,-2 LCID,18,432623,18 TT,39,1147583,2 DLR,28,253530,-2 WBA,37,850173,-4 PXD,48,958649,3 Average,38,1076296,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1076 million. That figure was $1923 million in CDNS's case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand Lucid Group Inc. (NASDAQ:LCID) is the least popular one with only 18 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CDNS is 47.8. 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. 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 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on CDNS as the stock returned 0.5% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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

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