Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Semtech Corporation (NASDAQ:SMTC).
Is SMTC a good stock to buy now? Semtech Corporation (NASDAQ:SMTC) has seen a decrease in activity from the world’s largest hedge funds recently. Semtech Corporation (NASDAQ:SMTC) was in 21 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. There were 25 hedge funds in our database with SMTC positions at the end of the second quarter. Our calculations also showed that SMTC 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.
Noam Gottesman of GLG Partners
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. With all of this in mind let’s go over the key hedge fund action regarding Semtech Corporation (NASDAQ:SMTC).
Do Hedge Funds Think SMTC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SMTC over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Semtech Corporation (NASDAQ:SMTC) was held by Fisher Asset Management, which reported holding $67 million worth of stock at the end of September. It was followed by Adage Capital Management with a $31.1 million position. Other investors bullish on the company included Arrowstreet Capital, Columbus Circle Investors, and GLG Partners. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Semtech Corporation (NASDAQ:SMTC), around 0.4% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to SMTC.
Seeing as Semtech Corporation (NASDAQ:SMTC) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedgies that decided to sell off their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $4.3 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $1.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Semtech Corporation (NASDAQ:SMTC) but similarly valued. We will take a look at Alamos Gold Inc (NYSE:AGI), Foot Locker, Inc. (NYSE:FL), Sogou Inc. (NYSE:SOGO), LivePerson, Inc. (NASDAQ:LPSN), The Chemours Company (NYSE:CC), Cosan Limited (NYSE:CZZ), and Agree Realty Corporation (NYSE:ADC). This group of stocks’ market valuations resemble SMTC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGI | 15 | 403593 | -1 |
| FL | 26 | 297082 | -3 |
| SOGO | 15 | 139405 | 10 |
| LPSN | 26 | 201096 | 3 |
| CC | 28 | 500904 | -7 |
| CZZ | 14 | 131081 | 0 |
| ADC | 16 | 250052 | 0 |
| Average | 20 | 274745 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $151 million in SMTC’s case. The Chemours Company (NYSE:CC) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 14 bullish hedge fund positions. Semtech Corporation (NASDAQ:SMTC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SMTC is 51.2. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on SMTC as the stock returned 34.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Semtech Corp (NASDAQ:SMTC)
Follow Semtech Corp (NASDAQ:SMTC)
Disclosure: None. This article was originally published at Insider Monkey.
