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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was ON Semiconductor Corporation (NASDAQ:ON).
ON Semiconductor Corporation (NASDAQ:ON) was in 32 hedge funds’ portfolios at the end of December. ON investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 25 hedge funds in our database with ON positions at the end of the previous quarter. Our calculations also showed that ON 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 perceived as unimportant, old investment tools of years past. While there are over 8000 funds with their doors open at the moment, Our experts hone in on the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors orchestrate the majority of all hedge funds’ total capital, and by observing their finest stock picks, Insider Monkey has unsheathed a few investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year 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 .
Cliff Asness of AQR Capital Management
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 we’re going to view the new hedge fund action regarding ON Semiconductor Corporation (NASDAQ:ON).
How have hedgies been trading ON Semiconductor Corporation (NASDAQ:ON)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ON over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Paradice Investment Management held the most valuable stake in ON Semiconductor Corporation (NASDAQ:ON), which was worth $84.6 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $83.1 million worth of shares. AQR Capital Management, Simcoe Capital Management, and Citadel Investment Group 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 Simcoe Capital Management allocated the biggest weight to ON Semiconductor Corporation (NASDAQ:ON), around 11.02% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, earmarking 5.88 percent of its 13F equity portfolio to ON.
As one would reasonably expect, key money managers were breaking ground themselves. KCL Capital, managed by Kevin Cottrell and Chris LaSusa, established the most valuable position in ON Semiconductor Corporation (NASDAQ:ON). KCL Capital had $32.9 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also initiated a $17.8 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Tor Minesuk’s Mondrian Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ON Semiconductor Corporation (NASDAQ:ON) but similarly valued. These stocks are NRG Energy Inc (NYSE:NRG), Booz Allen Hamilton Holding Corporation (NYSE:BAH), Devon Energy Corporation (NYSE:DVN), and RPM International Inc. (NYSE:RPM). This group of stocks’ market caps match ON’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NRG | 42 | 1399123 | -6 |
| BAH | 34 | 400542 | -1 |
| DVN | 54 | 914072 | 12 |
| RPM | 31 | 301067 | -3 |
| Average | 40.25 | 753701 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $563 million in ON’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand RPM International Inc. (NYSE:RPM) is the least popular one with only 31 bullish hedge fund positions. ON Semiconductor Corporation (NASDAQ:ON) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ON wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ON investors were disappointed as the stock returned -51.6% 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.
