We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Silicon Laboratories Inc. (NASDAQ:SLAB) was in 19 hedge funds’ portfolios at the end of September. SLAB investors should be aware of an increase in support from the world’s most elite money managers in recent months. There were 18 hedge funds in our database with SLAB positions at the end of the previous quarter. Our calculations also showed that SLAB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the recent hedge fund action encompassing Silicon Laboratories Inc. (NASDAQ:SLAB).
How have hedgies been trading Silicon Laboratories Inc. (NASDAQ:SLAB)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in SLAB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Totem Point Management was the largest shareholder of Silicon Laboratories Inc. (NASDAQ:SLAB), with a stake worth $14.6 million reported as of the end of September. Trailing Totem Point Management was Polar Capital, which amassed a stake valued at $14.3 million. Carlson Capital, Renaissance Technologies, and PDT Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Totem Point Management allocated the biggest weight to Silicon Laboratories Inc. (NASDAQ:SLAB), around 8.05% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.37 percent of its 13F equity portfolio to SLAB.
As aggregate interest increased, key money managers were breaking ground themselves. Totem Point Management, managed by Neal Nathani and Darren Dinneen, established the biggest position in Silicon Laboratories Inc. (NASDAQ:SLAB). Totem Point Management had $14.6 million invested in the company at the end of the quarter. John Osterweis’s Osterweis Capital Management also initiated a $3.7 million position during the quarter. The other funds with brand new SLAB positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks similar to Silicon Laboratories Inc. (NASDAQ:SLAB). We will take a look at Crane Co. (NYSE:CR), Emcor Group Inc (NYSE:EME), Blackstone Mortgage Trust Inc (NYSE:BXMT), and 10x Genomics, Inc. (NASDAQ:TXG). This group of stocks’ market valuations are closest to SLAB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CR | 21 | 336467 | -5 |
| EME | 25 | 242826 | 3 |
| BXMT | 15 | 84778 | -5 |
| TXG | 19 | 135952 | 19 |
| Average | 20 | 200006 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $72 million in SLAB’s case. Emcor Group Inc (NYSE:EME) is the most popular stock in this table. On the other hand Blackstone Mortgage Trust Inc (NYSE:BXMT) is the least popular one with only 15 bullish hedge fund positions. Silicon Laboratories Inc. (NASDAQ:SLAB) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SLAB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLAB investors were disappointed as the stock returned -4.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
