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Hedge Funds Have Never Been This Bullish On Analog Devices, Inc. (ADI)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Analog Devices, Inc. (NASDAQ:ADI).

Analog Devices, Inc. (NASDAQ:ADI) was in 40 hedge funds’ portfolios at the end of the first quarter of 2019. ADI investors should pay attention to an increase in hedge fund sentiment of late. There were 23 hedge funds in our database with ADI holdings at the end of the previous quarter. Our calculations also showed that ADI isn’t among the 30 most popular stocks among hedge funds.

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 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.

William Von Mueffling - Cantillon Capital Management

Let’s view the fresh hedge fund action encompassing Analog Devices, Inc. (NASDAQ:ADI).

What have hedge funds been doing with Analog Devices, Inc. (NASDAQ:ADI)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 74% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ADI over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ADI_jun2019

The largest stake in Analog Devices, Inc. (NASDAQ:ADI) was held by Generation Investment Management, which reported holding $1064.8 million worth of stock at the end of March. It was followed by Cantillon Capital Management with a $547 million position. Other investors bullish on the company included First Pacific Advisors LLC, Alkeon Capital Management, and Citadel Investment Group.

Consequently, key money managers have jumped into Analog Devices, Inc. (NASDAQ:ADI) headfirst. Jericho Capital Asset Management, managed by Josh Resnick, initiated the most valuable position in Analog Devices, Inc. (NASDAQ:ADI). Jericho Capital Asset Management had $192.1 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also initiated a $152.7 million position during the quarter. The other funds with brand new ADI positions are Steve Cohen’s Point72 Asset Management, Leon Shaulov’s Maplelane Capital, and Principal Global Investors’s Columbus Circle Investors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Analog Devices, Inc. (NASDAQ:ADI) but similarly valued. We will take a look at Dow Inc. (NYSE:DOW), Capital One Financial Corp. (NYSE:COF), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and National Grid plc (NYSE:NGG). This group of stocks’ market caps are closest to ADI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOW 8 169439 8
COF 44 1693757 0
BBVA 4 236051 0
NGG 8 462077 -2
Average 16 640331 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $3538 million in ADI’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 4 bullish hedge fund positions. Analog Devices, Inc. (NASDAQ:ADI) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ADI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ADI were disappointed as the stock returned -6.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

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

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