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Did Hedge Funds Make The Right Call On Cirrus Logic, Inc. (CRUS) ?

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 Cirrus Logic, Inc. (NASDAQ:CRUS) and determine whether hedge funds skillfully traded this stock.

Cirrus Logic, Inc. (NASDAQ:CRUS) investors should pay attention to an increase in support from the world’s most elite money managers recently. Our calculations also showed that CRUS 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 let’s take a gander at the fresh hedge fund action regarding Cirrus Logic, Inc. (NASDAQ:CRUS).

What does smart money think about Cirrus Logic, Inc. (NASDAQ:CRUS)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in CRUS a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is CRUS A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Cirrus Logic, Inc. (NASDAQ:CRUS), with a stake worth $97.7 million reported as of the end of September. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $48.3 million. Renaissance Technologies, D E Shaw, and Sandler Capital 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 Sandler Capital Management allocated the biggest weight to Cirrus Logic, Inc. (NASDAQ:CRUS), around 2.11% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to CRUS.

Consequently, some big names were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, initiated the biggest position in Cirrus Logic, Inc. (NASDAQ:CRUS). Driehaus Capital had $1.9 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Matthew Hulsizer’s PEAK6 Capital Management, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cirrus Logic, Inc. (NASDAQ:CRUS) but similarly valued. These stocks are Tandem Diabetes Care Inc (NASDAQ:TNDM), Cree, Inc. (NASDAQ:CREE), First Financial Bankshares Inc (NASDAQ:FFIN), and Southwest Gas Holdings, Inc. (NYSE:SWX). This group of stocks’ market valuations are closest to CRUS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNDM 28 245964 -11
CREE 16 309952 -9
FFIN 14 28294 1
SWX 13 79506 -10
Average 17.75 165929 -7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $286 million in CRUS’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Southwest Gas Holdings, Inc. (NYSE:SWX) is the least popular one with only 13 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. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CRUS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CRUS were disappointed as the stock returned -5.9% 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.