At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NeoPhotonics Corp (NYSE:NPTN) at the end of the second quarter and determine whether the smart money was really smart about this stock.
NeoPhotonics Corp (NYSE:NPTN) has seen a decrease in activity from the world’s largest hedge funds of late. NeoPhotonics Corp (NYSE:NPTN) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that NPTN 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
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 lithium company which could also benefit from the electric car adoption. 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. 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 website to get excerpts of these letters in your inbox. Now we’re going to take a look at the key hedge fund action regarding NeoPhotonics Corp (NYSE:NPTN).
What does smart money think about NeoPhotonics Corp (NYSE:NPTN)?
At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NPTN over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of NeoPhotonics Corp (NYSE:NPTN), with a stake worth $25.3 million reported as of the end of September. Trailing Renaissance Technologies was Masters Capital Management, which amassed a stake valued at $8.9 million. D E Shaw, Two Sigma Advisors, and Royce & Associates 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 Boardman Bay Capital Management allocated the biggest weight to NeoPhotonics Corp (NYSE:NPTN), around 3.51% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to NPTN.
Due to the fact that NeoPhotonics Corp (NYSE:NPTN) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that elected to cut their full holdings by the end of the second quarter. At the top of the heap, Jamie Zimmerman’s Litespeed Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $2.7 million in stock. Mark Broach’s fund, Manatuck Hill Partners, also cut its stock, about $1.7 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks similar to NeoPhotonics Corp (NYSE:NPTN). These stocks are Century Bancorp, Inc. (NASDAQ:CNBKA), Teekay Tankers Ltd. (NYSE:TNK), Precision BioSciences, Inc. (NASDAQ:DTIL), XPEL Inc. (NASDAQ:XPEL), Catchmark Timber Trust Inc (NYSE:CTT), Qudian Inc. (NYSE:QD), and Jumia Technologies AG (NYSE:JMIA). All of these stocks’ market caps resemble NPTN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNBKA | 3 | 17275 | -1 |
| TNK | 17 | 29045 | -4 |
| DTIL | 12 | 15431 | 1 |
| XPEL | 4 | 10056 | -5 |
| CTT | 9 | 51634 | -2 |
| QD | 8 | 9615 | -2 |
| JMIA | 8 | 15622 | 2 |
| Average | 8.7 | 21240 | -1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $76 million in NPTN’s case. Teekay Tankers Ltd. (NYSE:TNK) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks NeoPhotonics Corp (NYSE:NPTN) is more popular among hedge funds. Our overall hedge fund sentiment score for NPTN is 82.8. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately NPTN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NPTN were disappointed as the stock returned -31.4% during the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
