While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding NeoPhotonics Corp (NYSE:NPTN).
Is NPTN a good stock to buy now? NeoPhotonics Corp (NYSE:NPTN) investors should pay attention to a decrease in support from the world’s most elite money managers lately. NeoPhotonics Corp (NYSE:NPTN) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. There were 23 hedge funds in our database with NPTN holdings at the end of June. Our calculations also showed that NPTN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
William Graves of Boardman Bay Capital
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let’s take a glance at the latest hedge fund action surrounding NeoPhotonics Corp (NYSE:NPTN).
Do Hedge Funds Think NPTN Is A Good Stock To Buy Now?
At third quarter’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NPTN over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the largest position in NeoPhotonics Corp (NYSE:NPTN), worth close to $16.1 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Mike Masters of Masters Capital Management, with a $7.3 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Will Graves’s Boardman Bay Capital Management and Jamie Zimmerman’s Litespeed Management. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to NeoPhotonics Corp (NYSE:NPTN), around 7.05% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, setting aside 4.7 percent of its 13F equity portfolio to NPTN.
Seeing as NeoPhotonics Corp (NYSE:NPTN) has witnessed a decline in interest from the smart money, it’s safe to say that there were a few money managers who were dropping their full holdings by the end of the third quarter. Interestingly, Chuck Royce’s Royce & Associates cut the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $5.1 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $2.1 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to NeoPhotonics Corp (NYSE:NPTN). These stocks are CooTek (Cayman) Inc. (NYSE:CTK), Covenant Logistics Group, Inc. (NASDAQ:CVLG), Vitru Limited (NASDAQ:VTRU), Metalla Royalty & Streaming Ltd. (NYSE:MTA), Global Indemnity Group LLC (NASDAQ:GBLI), Titan Machinery Inc. (NASDAQ:TITN), and Pulse Biosciences, Inc (NASDAQ:PLSE). This group of stocks’ market values are closest to NPTN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTK | 1 | 529 | -1 |
| CVLG | 11 | 24574 | 1 |
| VTRU | 9 | 11476 | 9 |
| MTA | 3 | 2860 | -1 |
| GBLI | 7 | 11899 | 3 |
| TITN | 14 | 17341 | 5 |
| PLSE | 2 | 449 | 0 |
| Average | 6.7 | 9875 | 2.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $52 million in NPTN’s case. Titan Machinery Inc. (NASDAQ:TITN) is the most popular stock in this table. On the other hand CooTek (Cayman) Inc. (NYSE:CTK) is the least popular one with only 1 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 70.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on NPTN as the stock returned 43.3% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
