Is Microchip Technology Incorporated (MCHP) Going to Burn These Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Microchip Technology Incorporated (NASDAQ:MCHP) in this article.

Microchip Technology Incorporated (NASDAQ:MCHP) investors should be aware of a decrease in enthusiasm from smart money of late. Microchip Technology Incorporated (NASDAQ:MCHP) was in 42 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 46. Our calculations also showed that MCHP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we leave no stone unturned when looking for 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a glance at the key hedge fund action encompassing Microchip Technology Incorporated (NASDAQ:MCHP).

Do Hedge Funds Think MCHP Is A Good Stock To Buy Now?

At first quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 38 hedge funds with a bullish position in MCHP 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.

More specifically, Platinum Asset Management was the largest shareholder of Microchip Technology Incorporated (NASDAQ:MCHP), with a stake worth $299.8 million reported as of the end of March. Trailing Platinum Asset Management was Millennium Management, which amassed a stake valued at $108.7 million. Point72 Asset Management, D E Shaw, and Generation Investment 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 Blue Grotto Capital allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 7.28% of its 13F portfolio. Platinum Asset Management is also relatively very bullish on the stock, designating 6.69 percent of its 13F equity portfolio to MCHP.

Due to the fact that Microchip Technology Incorporated (NASDAQ:MCHP) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers who sold off their positions entirely last quarter. Intriguingly, Alec Litowitz and Ross Laser’s Magnetar Capital cut the largest investment of the 750 funds followed by Insider Monkey, comprising about $45.4 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund said goodbye to about $23.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Microchip Technology Incorporated (NASDAQ:MCHP) but similarly valued. These stocks are Manulife Financial Corporation (NYSE:MFC), eBay Inc (NASDAQ:EBAY), L3Harris Technologies, Inc. (NASDAQ:LHX), The Bank of New York Mellon Corporation (NYSE:BK), Cognizant Technology Solutions Corp (NASDAQ:CTSH), DuPont de Nemours Inc (NYSE:DD), and Lloyds Banking Group PLC (NYSE:LYG). All of these stocks’ market caps are similar to MCHP’s market cap.

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As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $2171 million. That figure was $963 million in MCHP’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCHP is 69.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately MCHP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MCHP were disappointed as the stock returned -5.9% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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