Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Silicon Motion Technology Corp. (NASDAQ:SIMO)? The smart money sentiment can provide an answer to this question.
Is Silicon Motion Technology Corp. (NASDAQ:SIMO) a buy here? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions were trimmed by 4 in recent months. Silicon Motion Technology Corp. (NASDAQ:SIMO) was in 20 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 29. Our calculations also showed that SIMO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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. With all of this in mind let’s review the fresh hedge fund action surrounding Silicon Motion Technology Corp. (NASDAQ:SIMO).
Do Hedge Funds Think SIMO Is A Good Stock To Buy Now?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in SIMO a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Cardinal Capital held the most valuable stake in Silicon Motion Technology Corp. (NASDAQ:SIMO), which was worth $171.1 million at the end of the second quarter. On the second spot was Yiheng Capital which amassed $113 million worth of shares. Millennium Management, GLG Partners, and Two Sigma Advisors 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 Yiheng Capital allocated the biggest weight to Silicon Motion Technology Corp. (NASDAQ:SIMO), around 4.55% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, dishing out 4.09 percent of its 13F equity portfolio to SIMO.
Judging by the fact that Silicon Motion Technology Corp. (NASDAQ:SIMO) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely by the end of the second quarter. Interestingly, Steve Cohen’s Point72 Asset Management dumped the biggest stake of the 750 funds tracked by Insider Monkey, comprising about $15.2 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $11.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Silicon Motion Technology Corp. (NASDAQ:SIMO). We will take a look at Urban Edge Properties (NYSE:UE), Aeva Technologies, Inc. (NYSE:AEVA), Apollo Commercial Real Est. Finance Inc (NYSE:ARI), Black Stone Minerals LP (NYSE:BSM), Sumo Logic, Inc. (NASDAQ:SUMO), Flagstar Bancorp Inc (NYSE:FBC), and Innospec Inc. (NASDAQ:IOSP). All of these stocks’ market caps are closest to SIMO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UE | 16 | 110060 | 4 |
| AEVA | 15 | 413023 | -1 |
| ARI | 9 | 15385 | -2 |
| BSM | 6 | 21854 | 1 |
| SUMO | 13 | 146343 | -1 |
| FBC | 25 | 268235 | -3 |
| IOSP | 14 | 114676 | 5 |
| Average | 14 | 155654 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $492 million in SIMO’s case. Flagstar Bancorp Inc (NYSE:FBC) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 6 bullish hedge fund positions. Silicon Motion Technology Corp. (NASDAQ:SIMO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SIMO is 58.5. 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 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on SIMO as the stock returned 5.9% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Silicon Motion Technology Corp (NASDAQ:SIMO)
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Disclosure: None. This article was originally published at Insider Monkey.
