Did Hedge Funds Make The Right Call On Ambarella Inc (AMBA) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAmbarella Inc (NASDAQ:AMBA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Ambarella Inc (NASDAQ:AMBA) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that AMBA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding Ambarella Inc (NASDAQ:AMBA).

Hedge fund activity in Ambarella Inc (NASDAQ:AMBA)

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in AMBA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AMBA A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Ambarella Inc (NASDAQ:AMBA), with a stake worth $72.7 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $25.7 million. Columbus Circle Investors, D E Shaw, and Millennium Management 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 P.A.W. CAPITAL PARTNERS allocated the biggest weight to Ambarella Inc (NASDAQ:AMBA), around 3.27% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, setting aside 1.93 percent of its 13F equity portfolio to AMBA.

Since Ambarella Inc (NASDAQ:AMBA) has experienced a decline in interest from hedge fund managers, we can see that there is a sect of money managers who were dropping their positions entirely by the end of the first quarter. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management cut the largest investment of the 750 funds followed by Insider Monkey, totaling about $2.9 million in stock. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its stock, about $2.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 5 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ambarella Inc (NASDAQ:AMBA) but similarly valued. We will take a look at Sabre Corporation (NASDAQ:SABR), ABM Industries, Inc. (NYSE:ABM), Columbia Financial, Inc. (NASDAQ:CLBK), and SPS Commerce, Inc. (NASDAQ:SPSC). This group of stocks’ market valuations resemble AMBA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SABR 30 134131 6
ABM 18 46833 6
CLBK 10 41683 -1
SPSC 16 137949 -8
Average 18.5 90149 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $162 million in AMBA’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Ambarella Inc (NASDAQ:AMBA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately AMBA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AMBA were disappointed as the stock returned -7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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