Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards AXT Inc (NASDAQ:AXTI) to find out whether there were any major changes in hedge funds’ views.
AXT Inc (NASDAQ:AXTI) has seen a decrease in activity from the world’s largest hedge funds lately. AXT Inc (NASDAQ:AXTI) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 19. Our calculations also showed that AXTI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Fred DiSanto of Ancora Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s check out the latest hedge fund action regarding AXT Inc (NASDAQ:AXTI).
What does smart money think about AXT Inc (NASDAQ:AXTI)?
At third quarter’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter of 2020. By comparison, 8 hedge funds held shares or bullish call options in AXTI a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of AXT Inc (NASDAQ:AXTI), with a stake worth $6.7 million reported as of the end of September. Trailing Royce & Associates was Portolan Capital Management, which amassed a stake valued at $5.7 million. Millennium Management, Ancora Advisors, and Shellback Capital 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 Portolan Capital Management allocated the biggest weight to AXT Inc (NASDAQ:AXTI), around 0.64% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to AXTI.
Due to the fact that AXT Inc (NASDAQ:AXTI) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Renaissance Technologies dumped the biggest investment of all the hedgies watched by Insider Monkey, worth an estimated $1.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to AXT Inc (NASDAQ:AXTI). We will take a look at Northern Oil & Gas, Inc. (NYSE:NOG), Enterprise Bancorp, Inc (NASDAQ:EBTC), Retail Value Inc. (NYSE:RVI), Chiasma Inc (NASDAQ:CHMA), Checkmate Pharmaceuticals, Inc. (NASDAQ:CMPI), NuZee, Inc. (NASDAQ:NUZE), and Wrap Technologies, Inc. (NASDAQ:WRTC). This group of stocks’ market caps match AXTI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NOG | 12 | 29194 | -10 |
| EBTC | 2 | 955 | 1 |
| RVI | 15 | 75281 | -1 |
| CHMA | 15 | 63581 | 1 |
| CMPI | 5 | 23436 | 5 |
| NUZE | 1 | 173 | 1 |
| WRTC | 4 | 5492 | -3 |
| Average | 7.7 | 28302 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.7 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $16 million in AXTI’s case. Retail Value Inc. (NYSE:RVI) is the most popular stock in this table. On the other hand NuZee, Inc. (NASDAQ:NUZE) is the least popular one with only 1 bullish hedge fund positions. AXT Inc (NASDAQ:AXTI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXTI is 38.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on AXTI as the stock returned 59.2% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
