Here is What Hedge Funds Think About Silicon Motion Technology Corporation (SIMO)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Silicon Motion Technology Corporation (NASDAQ:SIMO).

Is Silicon Motion Technology Corporation (NASDAQ:SIMO) a buy here? The best stock pickers are getting more bullish. The number of bullish hedge fund positions advanced by 2 recently. Our calculations also showed that SIMO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action encompassing Silicon Motion Technology Corporation (NASDAQ:SIMO).

What have hedge funds been doing with Silicon Motion Technology Corporation (NASDAQ:SIMO)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SIMO over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the largest position in Silicon Motion Technology Corporation (NASDAQ:SIMO). Cardinal Capital has a $65.2 million position in the stock, comprising 2.2% of its 13F portfolio. The second most bullish fund manager is Jonathan Guo of Yiheng Capital, with a $32.6 million position; 4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to Silicon Motion Technology Corporation (NASDAQ:SIMO), around 3.99% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to SIMO.

As one would reasonably expect, some big names have jumped into Silicon Motion Technology Corporation (NASDAQ:SIMO) headfirst. Weld Capital Management, managed by Minhua Zhang, created the most outsized position in Silicon Motion Technology Corporation (NASDAQ:SIMO). Weld Capital Management had $1 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $0.5 million position during the quarter. The following funds were also among the new SIMO investors: Mike Vranos’s Ellington, Benjamin A. Smith’s Laurion Capital Management, and Ryan Caldwell’s Chiron Investment Management.

Let’s also examine hedge fund activity in other stocks similar to Silicon Motion Technology Corporation (NASDAQ:SIMO). These stocks are Ebix Inc (NASDAQ:EBIX), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Inc. (NASDAQ:STMP), and Loral Space & Communications Inc. (NASDAQ:LORL). This group of stocks’ market valuations are closest to SIMO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EBIX 16 105290 -2
MNTA 17 230449 -2
STMP 17 306736 -2
LORL 18 605943 2
Average 17 312105 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $150 million in SIMO’s case. Loral Space & Communications Inc. (NASDAQ:LORL) is the most popular stock in this table. On the other hand Ebix Inc (NASDAQ:EBIX) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Silicon Motion Technology Corporation (NASDAQ:SIMO) is even less popular than EBIX. Hedge funds clearly dropped the ball on SIMO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SIMO as the stock returned 26.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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