How Did Microchip Technology Incorporated (MCHP) Compare Against Hedge Fund Darlings in 2019?

2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Microchip Technology Incorporated (NASDAQ:MCHP) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Microchip Technology Incorporated (NASDAQ:MCHP) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that MCHP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 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.

Kerr Neilson of Platinum Asset Management

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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a glance at the new hedge fund action surrounding Microchip Technology Incorporated (NASDAQ:MCHP).

What have hedge funds been doing with Microchip Technology Incorporated (NASDAQ:MCHP)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in MCHP over the last 17 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.

The largest stake in Microchip Technology Incorporated (NASDAQ:MCHP) was held by Lyrical Asset Management, which reported holding $365.5 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $191.6 million position. Other investors bullish on the company included Citadel Investment Group, Point72 Asset Management, and Partner Fund Management. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 8.84% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 5.5 percent of its 13F equity portfolio to MCHP.

As aggregate interest increased, key money managers were leading the bulls’ herd. Maplelane Capital, managed by Leon Shaulov, assembled the biggest call position in Microchip Technology Incorporated (NASDAQ:MCHP). Maplelane Capital had $50.2 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $47.9 million position during the quarter. The other funds with brand new MCHP positions are Leon Shaulov’s Maplelane Capital, Noam Gottesman’s GLG Partners, and Lee Ainslie’s Maverick Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Microchip Technology Incorporated (NASDAQ:MCHP) but similarly valued. These stocks are State Street Corporation (NYSE:STT), Cheniere Energy Partners LP (NYSE:CQP), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), and Kellogg Company (NYSE:K). This group of stocks’ market caps are similar to MCHP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STT 33 1207053 -3
CQP 5 11230 -2
ALXN 46 2582286 2
K 27 629331 -1
Average 27.75 1107475 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1107 million. That figure was $1168 million in MCHP’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 5 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MCHP as the stock returned 48% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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