We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Silicon Laboratories (NASDAQ:SLAB).
Silicon Laboratories (NASDAQ:SLAB) was in 26 hedge funds’ portfolios at the end of December. SLAB investors should pay attention to an increase in hedge fund sentiment in recent months. There were 22 hedge funds in our database with SLAB positions at the end of the previous quarter. Our calculations also showed that SLAB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most stock holders, hedge funds are seen as underperforming, old financial vehicles of the past. While there are greater than 8000 funds trading at present, We look at the crème de la crème of this club, around 850 funds. Most estimates calculate that this group of people administer the lion’s share of all hedge funds’ total capital, and by keeping an eye on their finest investments, Insider Monkey has deciphered many investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action encompassing Silicon Laboratories (NASDAQ:SLAB).
Hedge fund activity in Silicon Laboratories (NASDAQ:SLAB)
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in SLAB a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Silicon Laboratories (NASDAQ:SLAB), with a stake worth $24.7 million reported as of the end of September. Trailing Renaissance Technologies was Polar Capital, which amassed a stake valued at $11.3 million. Millennium Management, Carlson Capital, and D E Shaw 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 Quantinno Capital allocated the biggest weight to Silicon Laboratories (NASDAQ:SLAB), around 0.45% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to SLAB.
As industrywide interest jumped, key hedge funds have jumped into Silicon Laboratories (NASDAQ:SLAB) headfirst. Driehaus Capital, managed by Richard Driehaus, established the largest position in Silicon Laboratories (NASDAQ:SLAB). Driehaus Capital had $4 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also initiated a $2.4 million position during the quarter. The other funds with brand new SLAB positions are Hoon Kim’s Quantinno Capital, Michael Gelband’s ExodusPoint Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Silicon Laboratories (NASDAQ:SLAB) but similarly valued. We will take a look at Science Applications International Corp (NYSE:SAIC), The Wendy’s Company (NASDAQ:WEN), L Brands Inc (NYSE:LB), and Integra Lifesciences Holdings Corp (NASDAQ:IART). This group of stocks’ market caps are closest to SLAB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAIC | 27 | 298988 | 1 |
| WEN | 28 | 1039723 | -9 |
| LB | 46 | 681310 | 7 |
| IART | 17 | 115558 | -6 |
| Average | 29.5 | 533895 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $88 million in SLAB’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Integra Lifesciences Holdings Corp (NASDAQ:IART) is the least popular one with only 17 bullish hedge fund positions. Silicon Laboratories (NASDAQ:SLAB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SLAB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLAB investors were disappointed as the stock returned -32% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
