The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Freescale Semiconductor Ltd (NYSE:FSL), and what that likely means for the prospects of the company and its stock.
Is Freescale Semiconductor Ltd an excellent investment now? Prominent investors are getting less bullish. The number of long hedge fund bets decreased by 7 recently. FSL was in 23 hedge funds’ portfolios at the end of the third quarter of 2015. There were 30 hedge funds in our database with FSL positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as TransDigm Group Incorporated (NYSE:TDG), KB Financial Group, Inc. (ADR) (NYSE:KB), and Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT) to gather more data points.
If you’d ask most market participants, hedge funds are assumed to be underperforming, old investment vehicles of the past. While there are greater than 8000 funds with their doors open at present, We choose to focus on the leaders of this group, approximately 700 funds. These money managers oversee bulk of all hedge funds’ total capital, and by observing their first-class investments, Insider Monkey has uncovered a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points annually for a decade in their back tests.
Now, let’s check out the fresh action regarding Freescale Semiconductor Ltd (NYSE:FSL).
What does the smart money think about Freescale Semiconductor Ltd (NYSE:FSL)?
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Pentwater Capital Management, managed by Matthew Halbower, holds the most valuable position in Freescale Semiconductor Ltd (NYSE:FSL). Pentwater Capital Management has a $152.7 million position in the stock, comprising 1.3% of its 13F portfolio. The second most bullish fund manager is Panayotis Takis Sparaggis of Alkeon Capital Management, with a $96.6 million position; the fund has 2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Alec Litowitz and Ross Laser’s Magnetar Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D E Shaw.
Because Freescale Semiconductor Ltd (NYSE:FSL) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who were dropping their positions entirely in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising about $81 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dropped about $23.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 7 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Freescale Semiconductor Ltd (NYSE:FSL) but similarly valued. These stocks are TransDigm Group Incorporated (NYSE:TDG), KB Financial Group, Inc. (ADR) (NYSE:KB), Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), and Whole Foods Market, Inc. (NASDAQ:WFM). All of these stocks’ market caps match FSL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $1909 million. That figure was $506 million in FSL’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (ADR) (NYSE:KB) is the least popular one with only 10 bullish hedge fund positions. Freescale Semiconductor Ltd (NYSE:FSL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TDG might be a better candidate to consider a long position.