Is Marvell Technology Group Ltd. (MRVL) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Marvell Technology Group Ltd. (NASDAQ:MRVL) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Marvell Technology Group Ltd. (NASDAQ:MRVL) investors should pay attention to an increase in enthusiasm from smart money in recent months. Marvell Technology Group Ltd. (NASDAQ:MRVL) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. There were 29 hedge funds in our database with MRVL positions at the end of the first quarter. Our calculations also showed that MRVL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to check out the latest hedge fund action surrounding Marvell Technology Group Ltd. (NASDAQ:MRVL).

What have hedge funds been doing with Marvell Technology Group Ltd. (NASDAQ:MRVL)?

At the end of June, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRVL over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Marvell Technology Group Ltd. (NASDAQ:MRVL), which was worth $146.3 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $143.5 million worth of shares. Citadel Investment Group, Fisher Asset Management, and Millennium Management 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 Crosslink Capital allocated the biggest weight to Marvell Technology Group Ltd. (NASDAQ:MRVL), around 3.67% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, designating 3.34 percent of its 13F equity portfolio to MRVL.

As industrywide interest jumped, some big names have jumped into Marvell Technology Group Ltd. (NASDAQ:MRVL) headfirst. Renaissance Technologies, assembled the largest position in Marvell Technology Group Ltd. (NASDAQ:MRVL). Renaissance Technologies had $33 million invested in the company at the end of the quarter. David Fiszel’s Honeycomb Asset Management also initiated a $14 million position during the quarter. The other funds with brand new MRVL positions are Dmitry Balyasny’s Balyasny Asset Management, Donald Sussman’s Paloma Partners, and Robert Joseph Caruso’s Select Equity Group.

Let’s check out hedge fund activity in other stocks similar to Marvell Technology Group Ltd. (NASDAQ:MRVL). We will take a look at American Water Works Company, Inc. (NYSE:AWK), XP Inc. (NASDAQ:XP), Williams Companies, Inc. (NYSE:WMB), Ecopetrol S.A. (NYSE:EC), Fortive Corporation (NYSE:FTV), China Telecom Corporation Limited (NYSE:CHA), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). This group of stocks’ market valuations are closest to MRVL’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $462 million. That figure was $665 million in MRVL’s case. Williams Companies, Inc. (NYSE:WMB) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Marvell Technology Group Ltd. (NASDAQ:MRVL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRVL is 84.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately MRVL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MRVL were disappointed as the stock returned 10.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.