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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Semtech Corporation (NASDAQ:SMTC) based on those filings.
Semtech Corporation (NASDAQ:SMTC) was in 12 hedge funds’ portfolios at the end of December. SMTC shareholders have witnessed a decrease in hedge fund interest recently. There were 17 hedge funds in our database with SMTC positions at the end of the previous quarter. Our calculations also showed that SMTC 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).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Phill Gross of Adage 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 take a peek at the key hedge fund action regarding Semtech Corporation (NASDAQ:SMTC).
How have hedgies been trading Semtech Corporation (NASDAQ:SMTC)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SMTC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Semtech Corporation (NASDAQ:SMTC), with a stake worth $80.5 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $33 million. Renaissance Technologies, Adage Capital Management, 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 Cerebellum Capital allocated the biggest weight to Semtech Corporation (NASDAQ:SMTC), around 0.29% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, designating 0.21 percent of its 13F equity portfolio to SMTC.
Judging by the fact that Semtech Corporation (NASDAQ:SMTC) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their positions entirely in the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dropped the largest investment of all the hedgies followed by Insider Monkey, totaling an estimated $32.4 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Semtech Corporation (NASDAQ:SMTC). These stocks are TerraForm Power Inc (NASDAQ:TERP), Strayer Education Inc (NASDAQ:STRA), Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), and Louisiana-Pacific Corporation (NYSE:LPX). This group of stocks’ market values match SMTC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TERP | 15 | 215703 | 2 |
| STRA | 13 | 273742 | -8 |
| IOVA | 32 | 1333013 | 1 |
| LPX | 29 | 565644 | -6 |
| Average | 22.25 | 597026 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $199 million in SMTC’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Strayer Education Inc (NASDAQ:STRA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Semtech Corporation (NASDAQ:SMTC) is even less popular than STRA. Hedge funds dodged a bullet by taking a bearish stance towards SMTC. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 5.5 percentage points. Unfortunately SMTC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SMTC investors were disappointed as the stock returned -29.2% 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 so far 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.
