Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
STMicroelectronics N.V. (NYSE:STM) has experienced a decrease in enthusiasm from smart money lately. STM was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with STM positions at the end of the previous quarter. Our calculations also showed that STM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the recent hedge fund action regarding STMicroelectronics N.V. (NYSE:STM).
What does smart money think about STMicroelectronics N.V. (NYSE:STM)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STM over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in STMicroelectronics N.V. (NYSE:STM). Arrowstreet Capital has a $56.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Phill Gross and Robert Atchinson of Adage Capital Management, with a $8.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish include Kevin Cottrell and Chris LaSusa’s KCL Capital, Ernest Chow and Jonathan Howe’s Sensato Capital Management and David Costen Haley’s HBK Investments. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to STMicroelectronics N.V. (NYSE:STM), around 2.67% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, setting aside 1.2 percent of its 13F equity portfolio to STM.
Because STMicroelectronics N.V. (NYSE:STM) has experienced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes last quarter. Interestingly, Renaissance Technologies sold off the biggest position of the 750 funds monitored by Insider Monkey, worth about $9.2 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $7.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as STMicroelectronics N.V. (NYSE:STM) but similarly valued. We will take a look at Mettler-Toledo International Inc. (NYSE:MTD), AmerisourceBergen Corporation (NYSE:ABC), Franco-Nevada Corporation (NYSE:FNV), and Yum China Holdings, Inc. (NYSE:YUMC). This group of stocks’ market valuations match STM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTD | 22 | 326854 | 2 |
| ABC | 36 | 435220 | 0 |
| FNV | 22 | 750908 | 4 |
| YUMC | 29 | 465970 | 1 |
| Average | 27.25 | 494738 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $495 million. That figure was $95 million in STM’s case. AmerisourceBergen Corporation (NYSE:ABC) is the most popular stock in this table. On the other hand Mettler-Toledo International Inc. (NYSE:MTD) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks STMicroelectronics N.V. (NYSE:STM) is even less popular than MTD. Hedge funds clearly dropped the ball on STM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on STM as the stock returned 26% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
