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Hedge Funds Are Souring On Semtech Corporation (SMTC)

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Semtech Corporation (NASDAQ:SMTC) in this article.

Semtech Corporation (NASDAQ:SMTC) was in 17 hedge funds’ portfolios at the end of June. SMTC shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 19 hedge funds in our database with SMTC holdings at the end of the previous quarter. Our calculations also showed that SMTC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the key hedge fund action regarding Semtech Corporation (NASDAQ:SMTC).

How have hedgies been trading Semtech Corporation (NASDAQ:SMTC)?

Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in SMTC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with SMTC Positions

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Semtech Corporation (NASDAQ:SMTC), worth close to $73.1 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Renaissance Technologies, with a $46.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions comprise Phill Gross and Robert Atchinson’s Adage Capital Management, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Seeing as Semtech Corporation (NASDAQ:SMTC) has witnessed falling interest from the smart money, we can see that there is a sect of funds that decided to sell off their positions entirely heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $1.9 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $1.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Semtech Corporation (NASDAQ:SMTC). We will take a look at Cantel Medical Corp. (NYSE:CMD), LiveRamp Holdings, Inc. (NYSE:RAMP), Ormat Technologies, Inc. (NYSE:ORA), and Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB). This group of stocks’ market values are closest to SMTC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMD 11 146585 -7
RAMP 22 309228 -1
ORA 9 169084 0
HOMB 13 25864 -2
Average 13.75 162690 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $209 million in SMTC’s case. LiveRamp Holdings, Inc. (NYSE:RAMP) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 9 bullish hedge fund positions. Semtech Corporation (NASDAQ:SMTC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SMTC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SMTC were disappointed as the stock returned 1.2% during the third 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 many of these stocks already outperformed the market so far this year.

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

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