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

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards QUALCOMM, Incorporated (NASDAQ:QCOM) and determine whether hedge funds skillfully traded this stock.

Is QUALCOMM, Incorporated (NASDAQ:QCOM) a safe stock to buy now? Money managers were in a bearish mood. The number of long hedge fund positions decreased by 7 in recent months. Our calculations also showed that QCOM 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.

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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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. With all of this in mind we’re going to check out the key hedge fund action regarding QUALCOMM, Incorporated (NASDAQ:QCOM).

What does smart money think about QUALCOMM, Incorporated (NASDAQ:QCOM)?

At Q1’s end, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in QCOM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in QUALCOMM, Incorporated (NASDAQ:QCOM). AQR Capital Management has a $227.3 million position in the stock, comprising 0.4% of its 13F portfolio. On AQR Capital Management’s heels is D. E. Shaw of D E Shaw, with a $222.6 million position; 0.3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism consist of Ken Griffin’s Citadel Investment Group, David Goel and Paul Ferri’s Matrix Capital Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Think Investments allocated the biggest weight to QUALCOMM, Incorporated (NASDAQ:QCOM), around 11.35% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, designating 7.03 percent of its 13F equity portfolio to QCOM.

Because QUALCOMM, Incorporated (NASDAQ:QCOM) has faced a decline in interest from the smart money, we can see that there exists a select few hedge funds who sold off their positions entirely in the first quarter. At the top of the heap, Rajiv Jain’s GQG Partners dropped the largest investment of all the hedgies tracked by Insider Monkey, worth about $93.5 million in stock, and Bill Miller’s Miller Value Partners was right behind this move, as the fund dumped about $44.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 7 funds in the first quarter.

Let’s go over 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 Starbucks Corporation (NASDAQ:SBUX), Toronto-Dominion Bank (NYSE:TD), BHP Group (NYSE:BBL), and Fidelity National Information Services Inc. (NYSE:FIS). This group of stocks’ market caps match QCOM’s market cap.

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As you can see these stocks had an average of 53.25 hedge funds with bullish positions and the average amount invested in these stocks was $3141 million. That figure was $1621 million in QCOM’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 19 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 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on QCOM as the stock returned 35.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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