Were Hedge Funds Right About Crowding NXP Semiconductors NV (NXPI)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to NXP Semiconductors NV (NASDAQ:NXPI) changed recently.

Is NXP Semiconductors NV (NASDAQ:NXPI) a healthy stock for your portfolio? The best stock pickers were becoming more confident. The number of long hedge fund bets advanced by 15 in recent months. NXP Semiconductors NV (NASDAQ:NXPI) was in 67 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 93. Our calculations also showed that NXPI 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.

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 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 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.

Ian Wace of Marshall Wace

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. Now let’s take a peek at the key hedge fund action encompassing NXP Semiconductors NV (NASDAQ:NXPI).

Hedge fund activity in NXP Semiconductors NV (NASDAQ:NXPI)

Heading into the third quarter of 2020, a total of 67 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NXPI over the last 20 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in NXP Semiconductors NV (NASDAQ:NXPI) was held by Whale Rock Capital Management, which reported holding $296.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $233.3 million position. Other investors bullish on the company included Point72 Asset Management, Point State Capital, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Mountain Road Advisors allocated the biggest weight to NXP Semiconductors NV (NASDAQ:NXPI), around 7.23% of its 13F portfolio. Sessa Capital is also relatively very bullish on the stock, setting aside 6.7 percent of its 13F equity portfolio to NXPI.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the most valuable position in NXP Semiconductors NV (NASDAQ:NXPI). Whale Rock Capital Management had $296.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $124.4 million position during the quarter. The other funds with brand new NXPI positions are Dmitry Balyasny’s Balyasny Asset Management, David Fiszel’s Honeycomb Asset Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now take a look at hedge fund activity in other stocks similar to NXP Semiconductors NV (NASDAQ:NXPI). These stocks are DocuSign, Inc. (NASDAQ:DOCU), Splunk Inc (NASDAQ:SPLK), Orange SA (NYSE:ORAN), Phillips 66 (NYSE:PSX), Mizuho Financial Group Inc. (NYSE:MFG), O’Reilly Automotive Inc (NASDAQ:ORLY), and Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). This group of stocks’ market values resemble NXPI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $1025 million. That figure was $2215 million in NXPI’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks NXP Semiconductors NV (NASDAQ:NXPI) is more popular among hedge funds. Our overall hedge fund sentiment score for NXPI is 81.6. 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on NXPI as the stock returned 20.7% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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