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Did Hedge Funds Drop The Ball On Synaptics Incorporated (SYNA) ?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Synaptics Incorporated (NASDAQ:SYNA) ready to rally soon? Money managers are taking a bearish view. The number of long hedge fund positions fell by 8 in recent months. Our calculations also showed that SYNA isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 40 percentage points since May 2014 through May 30, 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.

SYNA_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the fresh hedge fund action regarding Synaptics Incorporated (NASDAQ:SYNA).

What does smart money think about Synaptics Incorporated (NASDAQ:SYNA)?

At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SYNA over the last 16 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Clint Carlson, Carlson Capital

Of the funds tracked by Insider Monkey, Lynrock Lake, managed by Cynthia Paul, holds the number one position in Synaptics Incorporated (NASDAQ:SYNA). Lynrock Lake has a $88.2 million position in the stock, comprising 14.5% of its 13F portfolio. Coming in second is Fisher Asset Management, led by Ken Fisher, holding a $45.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Clint Carlson’s Carlson Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw.

Since Synaptics Incorporated (NASDAQ:SYNA) has experienced declining sentiment from the smart money, it’s easy to see that there were a few fund managers who were dropping their entire stakes heading into Q3. Interestingly, George Soros’s Soros Fund Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $4.4 million in stock, and Paul Hondros’s AlphaOne Capital Partners was right behind this move, as the fund dumped about $3.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 8 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Synaptics Incorporated (NASDAQ:SYNA). These stocks are 3D Systems Corporation (NYSE:DDD), MTS Systems Corporation (NASDAQ:MTSC), Abercrombie & Fitch Co. (NYSE:ANF), and Camping World Holdings, Inc. (NYSE:CWH). This group of stocks’ market valuations are closest to SYNA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DDD 11 38947 -2
MTSC 12 125808 2
ANF 26 124297 1
CWH 9 106511 -1
Average 14.5 98891 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $179 million in SYNA’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand Camping World Holdings, Inc. (NYSE:CWH) is the least popular one with only 9 bullish hedge fund positions. Synaptics Incorporated (NASDAQ:SYNA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SYNA as the stock returned 37.1% during the same time frame and outperformed the market by an even larger margin.

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

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