Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Advanced Micro Devices, Inc. (NASDAQ:AMD).
Advanced Micro Devices, Inc. (NASDAQ:AMD) has experienced a decrease in hedge fund interest in recent months. AMD was in 53 hedge funds’ portfolios at the end of December. There were 59 hedge funds in our database with AMD holdings at the end of the previous quarter. Our calculations also showed that AMD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 41 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a look at the recent hedge fund action encompassing Advanced Micro Devices, Inc. (NASDAQ:AMD).
How have hedgies been trading Advanced Micro Devices, Inc. (NASDAQ:AMD)?
Heading into the first quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AMD over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Advanced Micro Devices, Inc. (NASDAQ:AMD), which was worth $463.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $278.4 million worth of shares. Renaissance Technologies, GQG Partners, and Polar Capital 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 Atreides Management allocated the biggest weight to Advanced Micro Devices, Inc. (NASDAQ:AMD), around 5.73% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, dishing out 4.25 percent of its 13F equity portfolio to AMD.
Because Advanced Micro Devices, Inc. (NASDAQ:AMD) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their entire stakes heading into Q4. Interestingly, Ken Griffin’s Citadel Investment Group cut the biggest position of the 750 funds watched by Insider Monkey, totaling about $181.9 million in stock, and Kenneth Tropin’s Graham Capital Management was right behind this move, as the fund dumped about $147.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Advanced Micro Devices, Inc. (NASDAQ:AMD) but similarly valued. We will take a look at ServiceNow Inc (NYSE:NOW), General Motors Company (NYSE:GM), Las Vegas Sands Corp. (NYSE:LVS), and America Movil SAB de CV (NYSE:AMX). All of these stocks’ market caps are similar to AMD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NOW | 75 | 5035036 | -17 |
| GM | 75 | 6531524 | -1 |
| LVS | 37 | 1256467 | -5 |
| AMX | 17 | 278371 | 6 |
| Average | 51 | 3275350 | -4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 51 hedge funds with bullish positions and the average amount invested in these stocks was $3275 million. That figure was $1463 million in AMD’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 17 bullish hedge fund positions. Advanced Micro Devices, Inc. (NASDAQ:AMD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on AMD as the stock returned -5.6% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
