Were Hedge Funds Right About Betting On Intel Corporation (INTC)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Intel Corporation (NASDAQ:INTC) and determine whether the smart money was really smart about this stock.

Intel Corporation (NASDAQ:INTC) was in 73 hedge funds’ portfolios at the end of the first quarter of 2020. INTC investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 58 hedge funds in our database with INTC holdings at the end of the previous quarter. Our calculations also showed that INTC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the fresh hedge fund action encompassing Intel Corporation (NASDAQ:INTC).

What does smart money think about Intel Corporation (NASDAQ:INTC)?

Heading into the second quarter of 2020, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the fourth quarter of 2019. On the other hand, there were a total of 62 hedge funds with a bullish position in INTC a year ago. 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, Fisher Asset Management was the largest shareholder of Intel Corporation (NASDAQ:INTC), with a stake worth $1504.6 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $1232.6 million. AQR Capital Management, Citadel Investment Group, and Citadel Investment Group 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 MFP Investors allocated the biggest weight to Intel Corporation (NASDAQ:INTC), around 22.57% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, earmarking 16.09 percent of its 13F equity portfolio to INTC.

As one would reasonably expect, specific money managers have jumped into Intel Corporation (NASDAQ:INTC) headfirst. Holocene Advisors, managed by Brandon Haley, established the most outsized position in Intel Corporation (NASDAQ:INTC). Holocene Advisors had $148 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also initiated a $133.4 million position during the quarter. The other funds with brand new INTC positions are Brian Ashford-Russell and Tim Woolley’s Polar Capital, Dmitry Balyasny’s Balyasny Asset Management, and Larry Chen and Terry Zhang’s Tairen Capital.

Let’s check out hedge fund activity in other stocks similar to Intel Corporation (NASDAQ:INTC). These stocks are Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), The Home Depot, Inc. (NYSE:HD), and Merck & Co., Inc. (NYSE:MRK). This group of stocks’ market values are closest to INTC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 72.5 hedge funds with bullish positions and the average amount invested in these stocks was $3233 million. That figure was $5959 million in INTC’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. Intel Corporation (NASDAQ:INTC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately INTC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on INTC were disappointed as the stock returned 8.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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