Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Diodes Incorporated (NASDAQ:DIOD).
Diodes Incorporated (NASDAQ:DIOD) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that DIOD isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s analyze the fresh hedge fund action regarding Diodes Incorporated (NASDAQ:DIOD).
What have hedge funds been doing with Diodes Incorporated (NASDAQ:DIOD)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DIOD over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the biggest position in Diodes Incorporated (NASDAQ:DIOD), worth close to $16.5 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $8.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Ken Fisher’s Fisher Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw.
With a general bullishness amongst the heavyweights, some big names have jumped into Diodes Incorporated (NASDAQ:DIOD) headfirst. Ellington, managed by Mike Vranos, assembled the biggest position in Diodes Incorporated (NASDAQ:DIOD). Ellington had $0.3 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new DIOD position is Jeffrey Talpins’s Element Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Diodes Incorporated (NASDAQ:DIOD) but similarly valued. These stocks are Fidelity NASDAQ Composite Tr Stk ETF (NASDAQ:ONEQ), Inphi Corporation (NYSE:IPHI), M.D.C. Holdings, Inc. (NYSE:MDC), and Meritor Inc (NYSE:MTOR). This group of stocks’ market values are similar to DIOD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONEQ | 2 | 1239 | 0 |
| IPHI | 14 | 198990 | 3 |
| MDC | 11 | 79846 | 0 |
| MTOR | 24 | 321562 | 5 |
| Average | 12.75 | 150409 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $71 million in DIOD’s case. Meritor Inc (NYSE:MTOR) is the most popular stock in this table. On the other hand Fidelity Nasdaq Composite Index Tracking Stock (NASDAQ:ONEQ) is the least popular one with only 2 bullish hedge fund positions. Diodes Incorporated (NASDAQ:DIOD) 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 MTOR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
