Did Hedge Funds Make The Right Call On Silicon Motion Technology Corp. (SIMO)?

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 Silicon Motion Technology Corp. (NASDAQ:SIMO) and determine whether hedge funds skillfully traded this stock.

Is Silicon Motion Technology Corp. (NASDAQ:SIMO) a sound investment right now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets went up by 1 in recent months. Our calculations also showed that SIMO 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 21st century investor’s toolkit there are a large number of gauges stock traders employ to assess stocks. A duo of the best gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite money managers can outclass the S&P 500 by a superb amount (see the details here).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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 look at the key hedge fund action regarding Silicon Motion Technology Corp. (NASDAQ:SIMO).

How are hedge funds trading Silicon Motion Technology Corp. (NASDAQ:SIMO)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SIMO 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.

Is SIMO A Good Stock To Buy?

The largest stake in Silicon Motion Technology Corp. (NASDAQ:SIMO) was held by Cardinal Capital, which reported holding $85.4 million worth of stock at the end of September. It was followed by Yiheng Capital with a $72.6 million position. Other investors bullish on the company included GLG Partners, Royce & Associates, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to Silicon Motion Technology Corp. (NASDAQ:SIMO), around 5.71% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, earmarking 4.2 percent of its 13F equity portfolio to SIMO.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Silicon Motion Technology Corp. (NASDAQ:SIMO) headfirst. GLG Partners, managed by Noam Gottesman, created the most outsized position in Silicon Motion Technology Corp. (NASDAQ:SIMO). GLG Partners had $10.8 million invested in the company at the end of the quarter.  Renaissance Technologies also initiated a $7.1 million position during the quarter. The other funds with brand new SIMO positions are Brett Hendrickson’s Nokomis Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Silicon Motion Technology Corp. (NASDAQ:SIMO) but similarly valued. These stocks are Comfort Systems USA, Inc. (NYSE:FIX), PagerDuty, Inc. (NYSE:PD), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), and Cortexyme, Inc. (NASDAQ:CRTX). This group of stocks’ market values are closest to SIMO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIX 20 71526 -4
PD 25 54152 10
KLIC 19 231499 -3
CRTX 6 14838 5
Average 17.5 93004 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $214 million in SIMO’s case. PagerDuty, Inc. (NYSE:PD) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 6 bullish hedge fund positions. Silicon Motion Technology Corp. (NASDAQ:SIMO) 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 SIMO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SIMO were disappointed as the stock returned 10.9% 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.

Follow Silicon Motion Technology Corp (NASDAQ:SIMO)

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