We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Onto Innovation Inc. (NYSE:ONTO).
Is Onto Innovation Inc. (NYSE:ONTO) an exceptional stock to buy now? Prominent investors are becoming less hopeful. The number of long hedge fund positions decreased by 4 lately. Our calculations also showed that ONTO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ONTO was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with ONTO positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the latest hedge fund action regarding Onto Innovation Inc. (NYSE:ONTO).
How have hedgies been trading Onto Innovation Inc. (NYSE:ONTO)?
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ONTO over the last 18 quarters. 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, Renaissance Technologies was the largest shareholder of Onto Innovation Inc. (NYSE:ONTO), with a stake worth $69 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $37.4 million. Fisher Asset Management, Two Sigma Advisors, and D E Shaw 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 Royce & Associates allocated the biggest weight to Onto Innovation Inc. (NYSE:ONTO), around 0.33% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to ONTO.
Judging by the fact that Onto Innovation Inc. (NYSE:ONTO) has experienced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes in the third quarter. It’s worth mentioning that David Harding’s Winton Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $1.5 million in stock. Alec Litowitz and Ross Laser’s fund, Magnetar Capital, also said goodbye to its stock, about $1.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Onto Innovation Inc. (NYSE:ONTO) but similarly valued. These stocks are Comfort Systems USA, Inc. (NYSE:FIX), New York Mortgage Trust, Inc. (NASDAQ:NYMT), Dillard’s, Inc. (NYSE:DDS), and Global Net Lease, Inc. (NYSE:GNL). This group of stocks’ market values are closest to ONTO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FIX | 24 | 137894 | 1 |
| NYMT | 15 | 71598 | 4 |
| DDS | 20 | 346150 | -2 |
| GNL | 10 | 54469 | -5 |
| Average | 17.25 | 152528 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $167 million in ONTO’s case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand Global Net Lease, Inc. (NYSE:GNL) is the least popular one with only 10 bullish hedge fund positions. Onto Innovation Inc. (NYSE:ONTO) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on ONTO, though not to the same extent, as the stock returned -16.6% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.