Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Qorvo Inc (NASDAQ:QRVO).
Qorvo Inc (NASDAQ:QRVO) investors should pay attention to an increase in enthusiasm from smart money recently. QRVO was in 35 hedge funds’ portfolios at the end of the third quarter of 2019. There were 28 hedge funds in our database with QRVO holdings at the end of the previous quarter. Our calculations also showed that QRVO 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.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Seth Klarman of Baupost Group
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the fresh hedge fund action surrounding Qorvo Inc (NASDAQ:QRVO).
How have hedgies been trading Qorvo Inc (NASDAQ:QRVO)?
At Q3’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in QRVO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baupost Group was the largest shareholder of Qorvo Inc (NASDAQ:QRVO), with a stake worth $421.2 million reported as of the end of September. Trailing Baupost Group was Soroban Capital Partners, which amassed a stake valued at $207.6 million. Iridian Asset Management, Citadel Investment Group, and AQR Capital Management 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 Baupost Group allocated the biggest weight to Qorvo Inc (NASDAQ:QRVO), around 4.77% of its portfolio. Soroban Capital Partners is also relatively very bullish on the stock, designating 2.92 percent of its 13F equity portfolio to QRVO.
Consequently, some big names have jumped into Qorvo Inc (NASDAQ:QRVO) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Qorvo Inc (NASDAQ:QRVO). Arrowstreet Capital had $5.6 million invested in the company at the end of the quarter. Leon Shaulov’s Maplelane Capital also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Minhua Zhang’s Weld Capital Management, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s also examine hedge fund activity in other stocks similar to Qorvo Inc (NASDAQ:QRVO). We will take a look at Carlyle Group LP (NASDAQ:CG), Service Corporation International (NYSE:SCI), Credit Acceptance Corp. (NASDAQ:CACC), and LINE Corporation (NYSE:LN). This group of stocks’ market valuations are closest to QRVO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CG | 7 | 201850 | 0 |
| SCI | 20 | 352282 | 5 |
| CACC | 23 | 1026982 | -4 |
| LN | 7 | 105831 | -2 |
| Average | 14.25 | 421736 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $1241 million in QRVO’s case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Carlyle Group LP (NASDAQ:CG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Qorvo Inc (NASDAQ:QRVO) is more popular among hedge funds. 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. Hedge funds were also right about betting on QRVO as the stock returned 40.6% during the first two months of Q4 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.
