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Did Hedge Funds Make The Right Call On Lattice Semiconductor Corporation (LSCC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Lattice Semiconductor Corporation (NASDAQ:LSCC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Lattice Semiconductor Corporation (NASDAQ:LSCC) was in 26 hedge funds’ portfolios at the end of the first quarter of 2020. LSCC has experienced a decrease in enthusiasm from smart money recently. There were 32 hedge funds in our database with LSCC positions at the end of the previous quarter. Our calculations also showed that LSCC 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.

Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to analyze the recent hedge fund action regarding Lattice Semiconductor Corporation (NASDAQ:LSCC).

Hedge fund activity in Lattice Semiconductor Corporation (NASDAQ:LSCC)

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LSCC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Lattice Semiconductor Corporation (NASDAQ:LSCC) was held by Southport Management, which reported holding $356.4 million worth of stock at the end of September. It was followed by Polar Capital with a $55.7 million position. Other investors bullish on the company included Lion Point, Columbus Circle Investors, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Lattice Semiconductor Corporation (NASDAQ:LSCC), around 9.95% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, earmarking 9.09 percent of its 13F equity portfolio to LSCC.

Because Lattice Semiconductor Corporation (NASDAQ:LSCC) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Intriguingly, Renaissance Technologies sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $33.4 million in stock. Leon Shaulov’s fund, Maplelane Capital, also sold off its stock, about $27.8 million worth. These transactions are important to note, as total hedge fund interest fell by 6 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Lattice Semiconductor Corporation (NASDAQ:LSCC). We will take a look at Assured Guaranty Ltd. (NYSE:AGO), W.R. Grace & Co. (NYSE:GRA), Amicus Therapeutics, Inc. (NASDAQ:FOLD), and Envista Holdings Corporation (NYSE:NVST). This group of stocks’ market valuations are similar to LSCC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGO 28 299640 -5
GRA 35 866211 -11
FOLD 28 842269 -7
NVST 22 273772 -20
Average 28.25 570473 -10.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $570 million. That figure was $531 million in LSCC’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Envista Holdings Corporation (NYSE:NVST) is the least popular one with only 22 bullish hedge fund positions. Lattice Semiconductor Corporation (NASDAQ:LSCC) is not the least popular stock in this group but hedge fund interest is still below 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on LSCC as the stock returned 59.3% during the second quarter and outperformed the market by an even larger margin.

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