Did Hedge Funds Make The Right Call On InterDigital, Inc. (IDCC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards InterDigital, Inc. (NASDAQ:IDCC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

InterDigital, Inc. (NASDAQ:IDCC) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that IDCC 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s view the fresh hedge fund action encompassing InterDigital, Inc. (NASDAQ:IDCC).

How are hedge funds trading InterDigital, Inc. (NASDAQ:IDCC)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in IDCC a year ago. 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, Renaissance Technologies was the largest shareholder of InterDigital, Inc. (NASDAQ:IDCC), with a stake worth $71.4 million reported as of the end of September. Trailing Renaissance Technologies was Shannon River Fund Management, which amassed a stake valued at $54 million. D E Shaw, Toronado Partners, and Rubric Capital Management 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 Toronado Partners allocated the biggest weight to InterDigital, Inc. (NASDAQ:IDCC), around 9.56% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, designating 9.13 percent of its 13F equity portfolio to IDCC.

Due to the fact that InterDigital, Inc. (NASDAQ:IDCC) has experienced declining sentiment from the smart money, it’s safe to say that there were a few hedge funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Michael Hintze’s CQS Cayman LP sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $20.1 million in stock, and Xiuping Li’s Opti Capital Management was right behind this move, as the fund said goodbye to about $11.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as InterDigital, Inc. (NASDAQ:IDCC) but similarly valued. These stocks are The Goodyear Tire & Rubber Company (NASDAQ:GT), Embraer SA (NYSE:ERJ), Itau CorpBanca (NYSE:ITCB), and Zogenix, Inc. (NASDAQ:ZGNX). This group of stocks’ market caps are similar to IDCC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $290 million in IDCC’s case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. InterDigital, Inc. (NASDAQ:IDCC) is not the most popular stock in this group but hedge fund interest is still above average. 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 beat the market by 15.5 percentage points. Hedge funds were also right about betting on IDCC as the stock returned 27.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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