How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Inphi Corporation (NYSE:IPHI) and determine whether hedge funds had an edge regarding this stock.
Inphi Corporation (NYSE:IPHI) investors should pay attention to an increase in enthusiasm from smart money recently. Inphi Corporation (NYSE:IPHI) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that IPHI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
If you’d ask most investors, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are greater than 8000 funds in operation today, We hone in on the upper echelon of this club, approximately 850 funds. Most estimates calculate that this group of people oversee the lion’s share of all hedge funds’ total capital, and by following their inimitable investments, Insider Monkey has formulated a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to check out the new hedge fund action encompassing Inphi Corporation (NYSE:IPHI).
How are hedge funds trading Inphi Corporation (NYSE:IPHI)?
At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IPHI over the last 20 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Inphi Corporation (NYSE:IPHI), which was worth $111.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $103.6 million worth of shares. Arrowstreet Capital, Millennium Management, and Two Sigma Advisors 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 Discovery Capital Management allocated the biggest weight to Inphi Corporation (NYSE:IPHI), around 6.78% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, earmarking 6.39 percent of its 13F equity portfolio to IPHI.
Now, some big names were breaking ground themselves. Discovery Capital Management, managed by Rob Citrone, initiated the biggest position in Inphi Corporation (NYSE:IPHI). Discovery Capital Management had $37.3 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also made a $22.5 million investment in the stock during the quarter. The following funds were also among the new IPHI investors: Michael R. Weisberg’s Crestwood Capital Management, Greg Eisner’s Engineers Gate Manager, and Kevin McCarthy’s Breakline Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Inphi Corporation (NYSE:IPHI) but similarly valued. We will take a look at Autoliv Inc. (NYSE:ALV), HD Supply Holdings Inc (NASDAQ:HDS), Apartment Investment and Management Co. (NYSE:AIV), AppFolio Inc (NASDAQ:APPF), Zions Bancorporation, National Association (NASDAQ:ZION), Ingredion Incorporated (NYSE:INGR), and Kimco Realty Corp (NYSE:KIM). This group of stocks’ market values are closest to IPHI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $643 million in IPHI’s case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand AppFolio Inc (NASDAQ:APPF) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Inphi Corporation (NYSE:IPHI) is more popular among hedge funds. Our overall hedge fund sentiment score for IPHI is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately IPHI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IPHI were disappointed as the stock returned -3% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.