Were Hedge Funds Right About Crowding QUALCOMM, Incorporated (QCOM)?

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 QUALCOMM, Incorporated (NASDAQ:QCOM).

QUALCOMM, Incorporated (NASDAQ:QCOM) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. QUALCOMM, Incorporated (NASDAQ:QCOM) was in 74 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 70. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 60 hedge funds in our database with QCOM positions at the end of the first quarter. Our calculations also showed that QCOM 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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. 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 we’re going to analyze the latest hedge fund action regarding QUALCOMM, Incorporated (NASDAQ:QCOM).

Hedge fund activity in QUALCOMM, Incorporated (NASDAQ:QCOM)

Heading into the third quarter of 2020, a total of 74 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards QCOM over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Matrix Capital Management was the largest shareholder of QUALCOMM, Incorporated (NASDAQ:QCOM), with a stake worth $404.3 million reported as of the end of September. Trailing Matrix Capital Management was D E Shaw, which amassed a stake valued at $279 million. Citadel Investment Group, AQR Capital Management, and GLG Partners 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 Valueworks LLC allocated the biggest weight to QUALCOMM, Incorporated (NASDAQ:QCOM), around 8.27% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, setting aside 6.97 percent of its 13F equity portfolio to QCOM.

As one would reasonably expect, specific money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in QUALCOMM, Incorporated (NASDAQ:QCOM). Marshall Wace LLP had $48.9 million invested in the company at the end of the quarter. Spencer M. Waxman’s Shannon River Fund Management also initiated a $33.2 million position during the quarter. The other funds with new positions in the stock are Kevin Cottrell and Chris LaSusa’s KCL Capital, Julian Robertson’s Tiger Management, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as QUALCOMM, Incorporated (NASDAQ:QCOM) but similarly valued. We will take a look at Lockheed Martin Corporation (NYSE:LMT), GlaxoSmithKline plc (NYSE:GSK), Lowe’s Companies, Inc. (NYSE:LOW), Honeywell International Inc. (NYSE:HON), TOTAL S.A. (NYSE:TOT), Gilead Sciences, Inc. (NASDAQ:GILD), and Royal Bank of Canada (NYSE:RY). All of these stocks’ market caps resemble QCOM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.1 hedge funds with bullish positions and the average amount invested in these stocks was $2149 million. That figure was $2203 million in QCOM’s case. Lowe’s Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 16 bullish hedge fund positions. QUALCOMM, Incorporated (NASDAQ:QCOM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QCOM is 79.7. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on QCOM as the stock returned 42.2% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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