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Hedge Funds Are Selling STMicroelectronics N.V. (STM)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of STMicroelectronics N.V. (NYSE:STM) based on that data and determine whether they were really smart about the stock.

Is STMicroelectronics N.V. (NYSE:STM) a splendid investment right now? The best stock pickers were turning less bullish. The number of bullish hedge fund positions went down by 6 in recent months. Our calculations also showed that STM 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). STM was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with STM holdings at the end of the previous quarter.

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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the latest hedge fund action surrounding STMicroelectronics N.V. (NYSE:STM).

How are hedge funds trading STMicroelectronics N.V. (NYSE:STM)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in STM 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.

The largest stake in STMicroelectronics N.V. (NYSE:STM) was held by Arrowstreet Capital, which reported holding $43.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11.1 million position. Other investors bullish on the company included Woodline Partners, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Woodline Partners allocated the biggest weight to STMicroelectronics N.V. (NYSE:STM), around 0.72% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to STM.

Because STMicroelectronics N.V. (NYSE:STM) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their entire stakes last quarter. Interestingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors cut the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $9.4 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund dumped about $8.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to STMicroelectronics N.V. (NYSE:STM). These stocks are PPL Corporation (NYSE:PPL), Hilton Worldwide Holdings Inc (NYSE:HLT), State Street Corporation (NYSE:STT), and Sun Life Financial Inc. (NYSE:SLF). All of these stocks’ market caps match STM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPL 28 311688 -4
HLT 43 3133178 -14
STT 34 503359 -11
SLF 16 102769 0
Average 30.25 1012749 -7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1013 million. That figure was $70 million in STM’s case. Hilton Worldwide Holdings Inc (NYSE:HLT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks STMicroelectronics N.V. (NYSE:STM) is even less popular than SLF. Hedge funds clearly dropped the ball on STM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on STM as the stock returned 28.5% in the second quarter and outperformed the market by an even larger margin.

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