At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Advanced Micro Devices, Inc. (NASDAQ:AMD) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Advanced Micro Devices, Inc. (NASDAQ:AMD) was in 51 hedge funds’ portfolios at the end of June. AMD has experienced a decrease in enthusiasm from smart money lately. There were 62 hedge funds in our database with AMD holdings at the end of March. Our calculations also showed that AMD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the new hedge fund action encompassing Advanced Micro Devices, Inc. (NASDAQ:AMD).
What have hedge funds been doing with Advanced Micro Devices, Inc. (NASDAQ:AMD)?
Heading into the third quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AMD over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Advanced Micro Devices, Inc. (NASDAQ:AMD) was held by Citadel Investment Group, which reported holding $493.2 million worth of stock at the end of September. It was followed by D E Shaw with a $458.2 million position. Other investors bullish on the company included Fisher Asset Management, Arrowstreet Capital, and GQG Partners. In terms of the portfolio weights assigned to each position Kadensa Capital allocated the biggest weight to Advanced Micro Devices, Inc. (NASDAQ:AMD), around 16.99% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, earmarking 5.21 percent of its 13F equity portfolio to AMD.
Judging by the fact that Advanced Micro Devices, Inc. (NASDAQ:AMD) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedge funds that elected to cut their full holdings in the second quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $53.8 million in stock. Larry Chen and Terry Zhang’s fund, Tairen Capital, also cut its stock, about $50.7 million worth. These moves are interesting, as total hedge fund interest fell by 11 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Advanced Micro Devices, Inc. (NASDAQ:AMD) but similarly valued. These stocks are Enbridge Inc (NYSE:ENB), The TJX Companies, Inc. (NYSE:TJX), Target Corporation (NYSE:TGT), General Electric Company (NYSE:GE), NetEase, Inc (NASDAQ:NTES), Duke Energy Corporation (NYSE:DUK), and Activision Blizzard, Inc. (NASDAQ:ATVI). All of these stocks’ market caps match AMD’s market cap.
|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 54.1 hedge funds with bullish positions and the average amount invested in these stocks was $2591 million. That figure was $2569 million in AMD’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 28 bullish hedge fund positions. Advanced Micro Devices, Inc. (NASDAQ:AMD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AMD is 40.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on AMD as the stock returned 72.6% since the end of June and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.