Did Hedge Funds Make The Right Call On Inphi Corporation (IPHI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Inphi Corporation (NYSE:IPHI) and determine whether the smart money was really smart about this stock.

Inphi Corporation (NYSE:IPHI) has seen an increase in hedge fund interest of late. Our calculations also showed that IPHI 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.

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 we’re going to take a look at the key hedge fund action encompassing Inphi Corporation (NYSE:IPHI).

Hedge fund activity in Inphi Corporation (NYSE:IPHI)

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IPHI over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Inphi Corporation (NYSE:IPHI) was held by Citadel Investment Group, which reported holding $109 million worth of stock at the end of September. It was followed by Cavalry Asset Management with a $65.3 million position. Other investors bullish on the company included Renaissance Technologies, Driehaus Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Shelter Haven Capital Management allocated the biggest weight to Inphi Corporation (NYSE:IPHI), around 8.75% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, earmarking 7.2 percent of its 13F equity portfolio to IPHI.

As one would reasonably expect, key money managers were leading the bulls’ herd. Shelter Haven Capital Management, managed by Jerry Kochanski, established the biggest position in Inphi Corporation (NYSE:IPHI). Shelter Haven Capital Management had $23.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $14.9 million investment in the stock during the quarter. The other funds with brand new IPHI positions are Charles Clough’s Clough Capital Partners, Brandon Haley’s Holocene Advisors, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Inphi Corporation (NYSE:IPHI) but similarly valued. We will take a look at Under Armour Inc (NYSE:UA), Primerica, Inc. (NYSE:PRI), Everbridge, Inc. (NASDAQ:EVBG), and Helen of Troy Limited (NASDAQ:HELE). This group of stocks’ market valuations are closest to IPHI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UA 37 660755 5
PRI 23 303962 -5
EVBG 31 796566 -6
HELE 16 135725 -1
Average 26.75 474252 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $474 million. That figure was $482 million in IPHI’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Helen of Troy Limited (NASDAQ:HELE) is the least popular one with only 16 bullish hedge fund positions. Inphi Corporation (NYSE:IPHI) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on IPHI as the stock returned 48.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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