Should You Buy Diodes Incorporated (DIOD)?

Diodes Incorporated (NASDAQ:DIOD) was in 11 hedge funds’ portfolio at the end of the first quarter of 2013. DIOD shareholders have witnessed an increase in enthusiasm from smart money lately. There were 7 hedge funds in our database with DIOD positions at the end of the previous quarter.

In the eyes of most market participants, hedge funds are assumed to be underperforming, outdated investment vehicles of the past. While there are over 8000 funds trading at present, we look at the upper echelon of this club, around 450 funds. It is widely believed that this group has its hands on most of the smart money’s total capital, and by paying attention to their highest performing equity investments, we have discovered a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Equally as beneficial, optimistic insider trading activity is a second way to parse down the marketplace. There are a number of stimuli for a corporate insider to sell shares of his or her company, but only one, very simple reason why they would buy. Various empirical studies have demonstrated the impressive potential of this strategy if investors understand where to look (learn more here).

Consequently, let’s take a glance at the latest action surrounding Diodes Incorporated (NASDAQ:DIOD).

What have hedge funds been doing with Diodes Incorporated (NASDAQ:DIOD)?

Heading into Q2, a total of 11 of the hedge funds we track were bullish in this stock, a change of 57% from the first quarter. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly.

According to our comprehensive database, Chuck Royce’s Royce & Associates had the biggest position in Diodes Incorporated (NASDAQ:DIOD), worth close to $38.3 million, comprising 0.1% of its total 13F portfolio. Coming in second is Richard S. Pzena of Pzena Investment Management, with a $36.8 million position; 0.3% of its 13F portfolio is allocated to the company. Some other hedge funds that hold long positions include Phill Gross and Robert Atchinson’s Adage Capital Management, Clint Carlson’s Carlson Capital and D. E. Shaw’s D E Shaw.

Now, specific money managers have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the largest position in Diodes Incorporated (NASDAQ:DIOD). Adage Capital Management had 14.2 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $12.6 million investment in the stock during the quarter. The other funds with brand new DIOD positions are Jim Simons’s Renaissance Technologies, Israel Englander’s Millennium Management, and Matthew Tewksbury’s Stevens Capital Management.

How have insiders been trading Diodes Incorporated (NASDAQ:DIOD)?

Bullish insider trading is most useful when the company in question has seen transactions within the past 180 days. Over the last half-year time period, Diodes Incorporated (NASDAQ:DIOD) has experienced zero unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Diodes Incorporated (NASDAQ:DIOD). These stocks are Cabot Microelectronics Corporation (NASDAQ:CCMP), TriQuint Semiconductor (NASDAQ:TQNT), QLogic Corporation (NASDAQ:QLGC), InvenSense Inc (NYSE:INVN), and MEMC Electronic Materials, Inc. (NYSE:WFR). All of these stocks are in the semiconductor – integrated circuits industry and their market caps resemble DIOD’s market cap.

With the returns exhibited by Insider Monkey’s research, everyday investors should always keep an eye on hedge fund and insider trading activity, and Diodes Incorporated (NASDAQ:DIOD) is no exception.

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