Hedge Funds Have Never Been This Bullish On Semtech Corporation (SMTC)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Semtech Corporation (NASDAQ:SMTC) based on that data and determine whether they were really smart about the stock.

Is Semtech Corporation (NASDAQ:SMTC) a buy right now? Prominent investors were taking a bullish view. The number of long hedge fund bets improved by 8 in recent months. Semtech Corporation (NASDAQ:SMTC) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SMTC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 17 hedge funds in our database with SMTC holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s review the fresh hedge fund action encompassing Semtech Corporation (NASDAQ:SMTC).

What does smart money think about Semtech Corporation (NASDAQ:SMTC)?

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 47% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SMTC over the last 20 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Semtech Corporation (NASDAQ:SMTC) was held by Fisher Asset Management, which reported holding $68.7 million worth of stock at the end of September. It was followed by Adage Capital Management with a $22.6 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Semtech Corporation (NASDAQ:SMTC), around 0.57% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to SMTC.

Consequently, specific money managers were breaking ground themselves. Engineers Gate Manager, managed by Greg Eisner, created the largest position in Semtech Corporation (NASDAQ:SMTC). Engineers Gate Manager had $1.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.4 million position during the quarter. The following funds were also among the new SMTC investors: Benjamin A. Smith’s Laurion Capital Management, Donald Sussman’s Paloma Partners, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Semtech Corporation (NASDAQ:SMTC) but similarly valued. These stocks are Change Healthcare Inc. (NASDAQ:CHNG), NeoGenomics, Inc. (NASDAQ:NEO), bluebird bio Inc (NASDAQ:BLUE), Enstar Group Ltd. (NASDAQ:ESGR), Rayonier Inc. (NYSE:RYN), UniFirst Corp (NYSE:UNF), and Unum Group (NYSE:UNM). This group of stocks’ market valuations resemble SMTC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $356 million. That figure was $158 million in SMTC’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. Semtech Corporation (NASDAQ:SMTC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SMTC is 58.6. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately SMTC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SMTC were disappointed as the stock returned -1.9% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.