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Is ChipMOS TECHNOLOGIES INC. (IMOS) Going to Burn These Hedge Funds?

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 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 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 ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS).

Is ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) ready to rally soon? Prominent investors are taking a bullish view. The number of long hedge fund bets advanced by 1 in recent months. Our calculations also showed that IMOS 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.

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.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind let’s analyze the recent hedge fund action surrounding ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS).

What have hedge funds been doing with ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 2 hedge funds with a bullish position in IMOS a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) was held by Renaissance Technologies, which reported holding $31.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.6 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.

As aggregate interest increased, specific money managers have jumped into ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) headfirst. Citadel Investment Group, managed by Ken Griffin, established the biggest position in ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS). Citadel Investment Group had $0.3 million invested in the company at the end of the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) but similarly valued. We will take a look at Bryn Mawr Bank Corporation (NASDAQ:BMTC), Whiting Petroleum Corporation (NYSE:WLL), The Andersons, Inc. (NASDAQ:ANDE), and Photronics, Inc. (NASDAQ:PLAB). All of these stocks’ market caps resemble IMOS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMTC 9 36594 0
WLL 25 58618 2
ANDE 14 52713 9
PLAB 18 89460 1
Average 16.5 59346 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $34 million in IMOS’s case. Whiting Petroleum Corporation (NYSE:WLL) is the most popular stock in this table. On the other hand Bryn Mawr Bank Corporation (NASDAQ:BMTC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) is even less popular than BMTC. 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 IMOS, though not to the same extent, as the stock returned 9.9% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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