Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Semtech Corporation (NASDAQ:SMTC)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Semtech Corporation (NASDAQ:SMTC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Glacier Bancorp, Inc. (NASDAQ:GBCI), Extended Stay America Inc (NASDAQ:STAY), and United States Steel Corporation (NYSE:X) to gather more data points.
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.
Let’s take a look at the key hedge fund action surrounding Semtech Corporation (NASDAQ:SMTC).
Hedge fund activity in Semtech Corporation (NASDAQ:SMTC)
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SMTC over the last 15 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Semtech Corporation (NASDAQ:SMTC), which was worth $48.1 million at the end of the first quarter. On the second spot was Millennium Management which amassed $17.6 million worth of shares. Moreover, Fisher Asset Management, Columbus Circle Investors, and Adage Capital Management were also bullish on Semtech Corporation (NASDAQ:SMTC), allocating a large percentage of their portfolios to this stock.
Seeing as Semtech Corporation (NASDAQ:SMTC) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of funds who were dropping their positions entirely in the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management dropped the largest investment of all the hedgies watched by Insider Monkey, comprising close to $2.1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $1.9 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Semtech Corporation (NASDAQ:SMTC) but similarly valued. These stocks are Glacier Bancorp, Inc. (NASDAQ:GBCI), Extended Stay America Inc (NASDAQ:STAY), United States Steel Corporation (NYSE:X), and National Health Investors Inc (NYSE:NHI). This group of stocks’ market valuations are closest to SMTC’s market valuation.
|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 20 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $139 million in SMTC’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 12 bullish hedge fund positions. Semtech Corporation (NASDAQ:SMTC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 SMTC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SMTC investors were disappointed as the stock returned -19.5% during the same time 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.