Do Hedge Funds Love Alpha and Omega Semiconductor Ltd (AOSL)?

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 Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) and determine whether hedge funds had an edge regarding this stock.

Is Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) a buy, sell, or hold? Investors who are in the know were becoming hopeful. The number of long hedge fund positions went up by 2 recently. Our calculations also showed that AOSL 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). AOSL was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with AOSL positions at the end of the previous quarter.

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.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the new hedge fund action encompassing Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL).

What have hedge funds been doing with Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AOSL over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) was held by Royce & Associates, which reported holding $10.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $5.4 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), around 0.14% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to AOSL.

Consequently, key money managers have jumped into Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized position in Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). PEAK6 Capital Management had $0.3 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $0.1 million position during the quarter. The only other fund with a new position in the stock is David Harding’s Winton Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) but similarly valued. We will take a look at CONSOL Coal Resources LP (NYSE:CCR), Atlanticus Holdings Corp (NASDAQ:ATLC), Kindred Biosciences Inc (NASDAQ:KIN), and The Bank of Princeton (NASDAQ:BPRN). This group of stocks’ market values are closest to AOSL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $20 million in AOSL’s case. Kindred Biosciences Inc (NASDAQ:KIN) is the most popular stock in this table. On the other hand CONSOL Coal Resources LP (NYSE:CCR) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on AOSL as the stock returned 69.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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