Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details.). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NXP Semiconductors NV (NASDAQ:NXPI)? The smart money sentiment can provide an answer to this question.
NXP Semiconductors NV (NASDAQ:NXPI) has experienced an increase in enthusiasm from smart money recently. Our calculations also showed that NXPI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Dmitry Balyasny of Balyasny Asset Managemnet
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the recent hedge fund action surrounding NXP Semiconductors NV (NASDAQ:NXPI).
Hedge fund activity in NXP Semiconductors NV (NASDAQ:NXPI)
Heading into the first quarter of 2020, a total of 80 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. By comparison, 72 hedge funds held shares or bullish call options in NXPI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Soroban Capital Partners was the largest shareholder of NXP Semiconductors NV (NASDAQ:NXPI), with a stake worth $643.3 million reported as of the end of September. Trailing Soroban Capital Partners was Citadel Investment Group, which amassed a stake valued at $398.2 million. Point72 Asset Management, Southpoint Capital Advisors, and Arrowstreet Capital 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 NXP Semiconductors NV (NASDAQ:NXPI), around 13.9% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, designating 10.62 percent of its 13F equity portfolio to NXPI.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Jericho Capital Asset Management, managed by Josh Resnick, assembled the largest position in NXP Semiconductors NV (NASDAQ:NXPI). Jericho Capital Asset Management had $127 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also initiated a $89.5 million position during the quarter. The following funds were also among the new NXPI investors: Dmitry Balyasny’s Balyasny Asset Management, Mikal Patel’s Oribel Capital Management, and Gordon W Malin’s Mountain Road Advisors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NXP Semiconductors NV (NASDAQ:NXPI) but similarly valued. We will take a look at The Travelers Companies, Inc (NYSE:TRV), Canadian Pacific Railway Limited (NYSE:CP), Carnival Corporation & Plc (NYSE:CCL), and Energy Transfer LP (NYSE:ET). All of these stocks’ market caps match NXPI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRV | 39 | 906120 | 1 |
| CP | 29 | 1760164 | -4 |
| CCL | 34 | 895329 | 4 |
| ET | 36 | 718963 | 2 |
| Average | 34.5 | 1070144 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1070 million. That figure was $3769 million in NXPI’s case. The Travelers Companies, Inc (NYSE:TRV) is the most popular stock in this table. On the other hand Canadian Pacific Railway Limited (NYSE:CP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks NXP Semiconductors NV (NASDAQ:NXPI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately NXPI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NXPI were disappointed as the stock returned -5.6% during the first two months of 2020 (through March 2nd) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
