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Hedge Funds Can’t Stop Buying Power Integrations Inc (POWI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Power Integrations Inc (NASDAQ:POWI).

Power Integrations Inc (NASDAQ:POWI) has experienced an increase in support from the world’s most elite money managers of late. POWI was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with POWI holdings at the end of the previous quarter. Our calculations also showed that POWI 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.

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 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. 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.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 we’re going to take a look at the recent hedge fund action regarding Power Integrations Inc (NASDAQ:POWI).

How have hedgies been trading Power Integrations Inc (NASDAQ:POWI)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in POWI a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in Power Integrations Inc (NASDAQ:POWI) was held by Polar Capital, which reported holding $39.9 million worth of stock at the end of September. It was followed by Cavalry Asset Management with a $10.1 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Power Integrations Inc (NASDAQ:POWI), around 1.11% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, designating 0.43 percent of its 13F equity portfolio to POWI.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Cavalry Asset Management, managed by John Hurley, assembled the biggest position in Power Integrations Inc (NASDAQ:POWI). Cavalry Asset Management had $10.1 million invested in the company at the end of the quarter. Louis Navellier’s Navellier & Associates also made a $0.4 million investment in the stock during the quarter. The other funds with brand new POWI positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Mike Vranos’s Ellington, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Power Integrations Inc (NASDAQ:POWI) but similarly valued. We will take a look at The Gap Inc. (NYSE:GPS), Kirby Corporation (NYSE:KEX), The Brink’s Company (NYSE:BCO), and OneMain Holdings Inc (NYSE:OMF). All of these stocks’ market caps are similar to POWI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPS 24 48879 -7
KEX 21 288290 -5
BCO 24 275433 0
OMF 34 221371 -5
Average 25.75 208493 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $77 million in POWI’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Kirby Corporation (NYSE:KEX) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Power Integrations Inc (NASDAQ:POWI) is even less popular than KEX. Hedge funds clearly dropped the ball on POWI 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on POWI as the stock returned 36.1% so far 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.