Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) and see how the stock is affected by the recent hedge fund activity.
Is Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) an outstanding stock to buy now? Investors who are in the know are taking an optimistic view. The number of long hedge fund bets increased by 4 recently. Our calculations also showed that AOSL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AOSL was in 14 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with AOSL holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action surrounding Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL).
How have hedgies been trading Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the second quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in AOSL a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), which was worth $22.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $12 million worth of shares. D E Shaw, Arrowstreet Capital, 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 Factorial Partners allocated the biggest weight to Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), around 0.28% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to AOSL.
With a general bullishness amongst the heavyweights, some big names have jumped into Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) headfirst. Winton Capital Management, managed by David Harding, assembled the most outsized position in Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). Winton Capital Management had $0.2 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0 million position during the quarter. The only other fund with a brand new AOSL position is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). These stocks are Alerus Financial Corporation (NASDAQ:ALRS), The First Bancorp, Inc. (NASDAQ:FNLC), Dynavax Technologies Corporation (NASDAQ:DVAX), and Avid Bioservices, Inc. (NASDAQ:CDMO). This group of stocks’ market values resemble AOSL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALRS | 3 | 6849 | 3 |
| FNLC | 1 | 6125 | 0 |
| DVAX | 13 | 46396 | 1 |
| CDMO | 8 | 31838 | 1 |
| Average | 6.25 | 22802 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $45 million in AOSL’s case. Dynavax Technologies Corporation (NASDAQ:DVAX) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AOSL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AOSL were disappointed as the stock returned -3.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
