Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Silicon Motion Technology Corp. (NASDAQ:SIMO) was in 13 hedge funds’ portfolios at the end of the first quarter of 2019. SIMO shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 17 hedge funds in our database with SIMO positions at the end of the previous quarter. Our calculations also showed that SIMO isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the key hedge fund action encompassing Silicon Motion Technology Corp. (NASDAQ:SIMO).
Hedge fund activity in Silicon Motion Technology Corp. (NASDAQ:SIMO)
At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in SIMO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cardinal Capital held the most valuable stake in Silicon Motion Technology Corp. (NASDAQ:SIMO), which was worth $40 million at the end of the first quarter. On the second spot was Yiheng Capital which amassed $36.6 million worth of shares. Moreover, Royce & Associates, Cloverdale Capital Management, and Point72 Asset Management were also bullish on Silicon Motion Technology Corp. (NASDAQ:SIMO), allocating a large percentage of their portfolios to this stock.
Due to the fact that Silicon Motion Technology Corp. (NASDAQ:SIMO) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers who were dropping their full holdings last quarter. Interestingly, Anand Parekh’s Alyeska Investment Group dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $10 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $0.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Silicon Motion Technology Corp. (NASDAQ:SIMO) but similarly valued. We will take a look at Rubius Therapeutics, Inc. (NASDAQ:RUBY), Gossamer Bio, Inc. (NASDAQ:GOSS), State Auto Financial Corporation (NASDAQ:STFC), and Stamps.com Inc. (NASDAQ:STMP). All of these stocks’ market caps resemble SIMO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RUBY | 5 | 25959 | 2 |
| GOSS | 12 | 225485 | 12 |
| STFC | 5 | 16077 | 1 |
| STMP | 29 | 265381 | -4 |
| Average | 12.75 | 133226 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $161 million in SIMO’s case. Stamps.com Inc. (NASDAQ:STMP) is the most popular stock in this table. On the other hand Rubius Therapeutics, Inc. (NASDAQ:RUBY) is the least popular one with only 5 bullish hedge fund positions. Silicon Motion Technology Corp. (NASDAQ:SIMO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on SIMO, though not to the same extent, as the stock returned 5.1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
