Did Hedge Funds Make The Right Call On Monolithic Power Systems, Inc. (MPWR) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Monolithic Power Systems, Inc. (NASDAQ:MPWR) and determine whether hedge funds had an edge regarding this stock.

Is Monolithic Power Systems, Inc. (NASDAQ:MPWR) the right pick for your portfolio? Money managers were taking a pessimistic view. The number of bullish hedge fund bets fell by 4 recently. Our calculations also showed that MPWR 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). MPWR was in 23 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with MPWR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are viewed as unimportant, old investment tools of years past. While there are over 8000 funds with their doors open at present, We choose to focus on the masters of this group, approximately 850 funds. Most estimates calculate that this group of people manage most of the smart money’s total capital, and by watching their inimitable equity investments, Insider Monkey has deciphered many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. Now let’s take a glance at the recent hedge fund action encompassing Monolithic Power Systems, Inc. (NASDAQ:MPWR).

What have hedge funds been doing with Monolithic Power Systems, Inc. (NASDAQ:MPWR)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MPWR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MPWR A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Rajiv Jain’s GQG Partners has the largest position in Monolithic Power Systems, Inc. (NASDAQ:MPWR), worth close to $107.4 million, comprising 0.7% of its total 13F portfolio. The second most bullish fund manager is Alex Sacerdote of Whale Rock Capital Management, with a $76.7 million position; the fund has 1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise John Hurley’s Cavalry Asset Management, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Monolithic Power Systems, Inc. (NASDAQ:MPWR), around 5% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 1.69 percent of its 13F equity portfolio to MPWR.

Seeing as Monolithic Power Systems, Inc. (NASDAQ:MPWR) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers that decided to sell off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the 750 funds watched by Insider Monkey, totaling an estimated $8.5 million in stock. Kevin Cottrell and Chris LaSusa’s fund, KCL Capital, also dropped its stock, about $7.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Monolithic Power Systems, Inc. (NASDAQ:MPWR). We will take a look at Peloton Interactive, Inc. (NASDAQ:PTON), Weibo Corp (NASDAQ:WB), Huntington Ingalls Industries Inc (NYSE:HII), and Logitech International SA (NASDAQ:LOGI). This group of stocks’ market valuations resemble MPWR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTON 36 748425 6
WB 10 182637 -1
HII 21 322441 -1
LOGI 15 186537 2
Average 20.5 360010 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $390 million in MPWR’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 10 bullish hedge fund positions. Monolithic Power Systems, Inc. (NASDAQ:MPWR) 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 MPWR as the stock returned 41.8% 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.