Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Ambarella Inc (NASDAQ:AMBA) has experienced an increase in enthusiasm from smart money lately. AMBA was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with AMBA positions at the end of the previous quarter. Our calculations also showed that AMBA isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the latest hedge fund action surrounding Ambarella Inc (NASDAQ:AMBA).
What does the smart money think about Ambarella Inc (NASDAQ:AMBA)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the second quarter of 2018. On the other hand, there were a total of 20 hedge funds with a bullish position in AMBA at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Ambarella Inc (NASDAQ:AMBA), with a stake worth $35.2 million reported as of the end of September. Trailing Citadel Investment Group was Potrero Capital Research, which amassed a stake valued at $11.6 million. First Pacific Advisors LLC, Citadel Investment Group, and Nokota Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers have been driving this bullishness. Potrero Capital Research, managed by Jack Ripsteen, initiated the largest position in Ambarella Inc (NASDAQ:AMBA). Potrero Capital Research had $11.6 million invested in the company at the end of the quarter. Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC also made a $11.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Phill Gross and Robert Atchinson’s Adage Capital Management, and David Alexander Witkin’s Beryl Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ambarella Inc (NASDAQ:AMBA) but similarly valued. We will take a look at AtriCure Inc. (NASDAQ:ATRC), AVROBIO, Inc. (NASDAQ:AVRO), Geopark Ltd (NYSE:GPRK), and Hess Midstream Partners LP (NYSE:HESM). This group of stocks’ market valuations are similar to AMBA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATRC | 22 | 188608 | 4 |
| AVRO | 14 | 249988 | -5 |
| GPRK | 10 | 84765 | -1 |
| HESM | 6 | 9071 | 1 |
| Average | 13 | 133108 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $82 million in AMBA’s case. AtriCure Inc. (NASDAQ:ATRC) is the most popular stock in this table. On the other hand Hess Midstream Partners LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. Ambarella Inc (NASDAQ:AMBA) 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. In this regard ATRC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
