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Did Hedge Funds Drop The Ball On Cirrus Logic, Inc. (CRUS)?

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Cirrus Logic, Inc. (NASDAQ:CRUS).

Is Cirrus Logic, Inc. (NASDAQ:CRUS) a good investment now? The smart money is getting less optimistic. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that CRUS isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Jeffrey Talpins Element Capital

We’re going to take a gander at the latest hedge fund action regarding Cirrus Logic, Inc. (NASDAQ:CRUS).

How are hedge funds trading Cirrus Logic, Inc. (NASDAQ:CRUS)?

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in CRUS a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

CRUS_apr2019

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in Cirrus Logic, Inc. (NASDAQ:CRUS), worth close to $80.2 million, amounting to 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is GLG Partners, led by Noam Gottesman, holding a $17.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

Due to the fact that Cirrus Logic, Inc. (NASDAQ:CRUS) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes in the third quarter. Interestingly, Christopher James’s Partner Fund Management said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $43.4 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund said goodbye to about $4.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cirrus Logic, Inc. (NASDAQ:CRUS) but similarly valued. We will take a look at DSW Inc. (NYSE:DSW), Worthington Industries, Inc. (NYSE:WOR), Southwestern Energy Company (NYSE:SWN), and Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA). This group of stocks’ market values are similar to CRUS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DSW 27 185944 0
WOR 11 59813 1
SWN 25 190350 2
IBA 3 29611 0
Average 16.5 116430 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $175 million in CRUS’s case. DSW Inc. (NYSE:DSW) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Cirrus Logic, Inc. (NASDAQ:CRUS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CRUS as the stock returned 41.1% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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