Was The Smart Money Right About Crowding Into Skyworks Solutions Inc (SWKS)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Skyworks Solutions Inc (NASDAQ:SWKS).

Skyworks Solutions Inc (NASDAQ:SWKS) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. Skyworks Solutions Inc (NASDAQ:SWKS) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistics is 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SWKS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to go over the fresh hedge fund action surrounding Skyworks Solutions Inc (NASDAQ:SWKS).

What have hedge funds been doing with Skyworks Solutions Inc (NASDAQ:SWKS)?

Heading into the third quarter of 2020, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 69% from the first quarter of 2020. On the other hand, there were a total of 31 hedge funds with a bullish position in SWKS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Skyworks Solutions Inc (NASDAQ:SWKS). AQR Capital Management has a $306.4 million position in the stock, comprising 0.5% of its 13F portfolio. On AQR Capital Management’s heels is Platinum Asset Management, led by Kerr Neilson, holding a $196.4 million position; 4.5% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions consist of Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel Investment Group and Larry Chen and Terry Zhang’s Tairen Capital. In terms of the portfolio weights assigned to each position Glaxis Capital Management allocated the biggest weight to Skyworks Solutions Inc (NASDAQ:SWKS), around 5.78% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, dishing out 5.58 percent of its 13F equity portfolio to SWKS.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Tairen Capital, managed by Larry Chen and Terry Zhang, initiated the most valuable position in Skyworks Solutions Inc (NASDAQ:SWKS). Tairen Capital had $74.5 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $29.6 million position during the quarter. The following funds were also among the new SWKS investors: John Hurley’s Cavalry Asset Management, Israel Englander’s Millennium Management, and Richard Mashaal’s Rima Senvest Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Skyworks Solutions Inc (NASDAQ:SWKS) but similarly valued. We will take a look at Trane Technologies plc (NYSE:TT), TELUS Corporation (NYSE:TU), FleetCor Technologies, Inc. (NYSE:FLT), Aptiv PLC (NYSE:APTV), FirstEnergy Corp. (NYSE:FE), Simon Property Group, Inc (NYSE:SPG), and Canon Inc. (NYSE:CAJ). This group of stocks’ market values are closest to SWKS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $839 million. That figure was $994 million in SWKS’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 9 bullish hedge fund positions. Skyworks Solutions Inc (NASDAQ:SWKS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWKS is 85.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on SWKS as the stock returned 17.5% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.