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Hedge Funds Are Nibbling On Silicon Motion Technology Corp. (SIMO)

In this article we will take a look at whether hedge funds think Silicon Motion Technology Corp. (NASDAQ:SIMO) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Silicon Motion Technology Corp. (NASDAQ:SIMO) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. SIMO investors should be aware of an increase in hedge fund interest recently. There were 17 hedge funds in our database with SIMO positions at the end of the previous quarter. 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.

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 S&P 500 ETFs by 58 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action surrounding Silicon Motion Technology Corp. (NASDAQ:SIMO).

How have hedgies been trading Silicon Motion Technology Corp. (NASDAQ:SIMO)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long 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. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Amy Minella’s Cardinal Capital has the largest position in Silicon Motion Technology Corp. (NASDAQ:SIMO), worth close to $85.4 million, amounting to 4.2% of its total 13F portfolio. The second largest stake is held by Yiheng Capital, managed by Jonathan Guo, which holds a $72.6 million position; 5.7% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Noam Gottesman’s GLG Partners, Chuck Royce’s Royce & Associates and John Overdeck and David Siegel’s 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, setting aside 4.2 percent of its 13F equity portfolio to SIMO.

Consequently, specific money managers have been driving this bullishness. GLG Partners, managed by Noam Gottesman, assembled the biggest 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 new positions in the stock 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 check out hedge fund activity in other stocks – not necessarily in the same industry as Silicon Motion Technology Corp. (NASDAQ:SIMO) but similarly valued. We will take a look at Comfort Systems USA, Inc. (NYSE:FIX), PagerDuty, Inc. (NYSE:PD), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), and Cortexyme, Inc. (NASDAQ:CRTX). All of these stocks’ market caps match SIMO’s market cap.

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. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on SIMO, though not to the same extent, as the stock returned 24.2% during the first two months and twenty two days of the second quarter and outperformed the market as well.

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