Is United Microelectronics Corp (ADR) (NYSE:UMC) an outstanding investment now? Hedge funds are in a bearish mood. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience
According to most investors, hedge funds are perceived as unimportant, outdated investment tools of yesteryear. While there are over 8000 funds trading at the moment, we look at the leaders of this group, about 450 funds. It is widely believed that this group oversees the majority of the smart money's total capital, and by paying attention to their top equity investments, we have determined a number of investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we've started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).
Equally as important, bullish insider trading sentiment is a second way to parse down the financial markets. As the old adage goes: there are plenty of reasons for a bullish insider to drop shares of his or her company, but only one, very simple reason why they would buy. Various empirical studies have demonstrated the valuable potential of this tactic if investors understand what to do (learn more here).
With these "truths" under our belt, let's take a look at the latest action regarding United Microelectronics Corp (ADR) (NYSE:UMC).
At Q1's end, a total of 13 of the hedge funds we track were long in this stock, a change of 0% from the first quarter. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully.
Of the funds we track, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in United Microelectronics Corp (ADR) (NYSE:UMC). Arrowstreet Capital has a $10.7 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is OZ Management, managed by Daniel S. Och, which held a $10.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Jim Simons's Renaissance Technologies, Andrew Weiss's Weiss Asset Management and Howard Marks's Oaktree Capital Management.
Because United Microelectronics Corp (ADR) (NYSE:UMC) has experienced a declination in interest from the smart money, it's easy to see that there is a sect of hedge funds who were dropping their entire stakes at the end of the first quarter. Intriguingly, David Costen Haley's HBK Investments sold off the biggest investment of the "upper crust" of funds we watch, totaling close to $0 million in stock. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Insider buying is particularly usable when the company in question has seen transactions within the past 180 days. Over the last half-year time period, United Microelectronics Corp (ADR) (NYSE:UMC) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).
Let's go over hedge fund and insider activity in other stocks similar to United Microelectronics Corp (ADR) (NYSE:UMC). These stocks are Lam Research Corporation (NASDAQ:LRCX), Cree, Inc. (NASDAQ:CREE), Advanced Semiconductor Engineering (ADR) (NYSE:ASX), Siliconware Precision Industries (ADR) (NASDAQ:SPIL), and Synopsys, Inc. (NASDAQ:SNPS). This group of stocks are the members of the semiconductor equipment & materials industry and their market caps match UMC's market cap.