Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Ambarella Inc (NASDAQ:AMBA) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that amba isn’t among the 30 most popular stocks among hedge funds.
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’ 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 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the latest hedge fund action encompassing Ambarella Inc (NASDAQ:AMBA).
How have hedgies been trading Ambarella Inc (NASDAQ:AMBA)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in AMBA a year ago. So, let’s review 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 $40.6 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $11.4 million. Columbus Circle Investors, Potrero Capital Research, and First Pacific Advisors LLC were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, initiated the most valuable position in Ambarella Inc (NASDAQ:AMBA). Renaissance Technologies had $11.4 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also initiated a $9.8 million position during the quarter. The following funds were also among the new AMBA investors: Frank Slattery’s Symmetry Peak Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Brandon Haley’s Holocene Advisors.
Let’s go over hedge fund activity in other stocks similar to Ambarella Inc (NASDAQ:AMBA). We will take a look at Shutterfly, Inc. (NASDAQ:SFLY), Suburban Propane Partners LP (NYSE:SPH), TriMas Corp (NASDAQ:TRS), and Rowan Companies plc (NYSE:RDC). 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 |
|---|---|---|---|
| SFLY | 28 | 423757 | 6 |
| SPH | 5 | 86935 | 0 |
| TRS | 18 | 123730 | 2 |
| RDC | 18 | 375896 | 0 |
| Average | 17.25 | 252580 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $100 million in AMBA’s case. Shutterfly, Inc. (NASDAQ:SFLY) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 5 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately AMBA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AMBA were disappointed as the stock returned -11% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
