We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Cohu, Inc. (NASDAQ:COHU).
Is COHU a good stock to buy now? Prominent investors were taking a bearish view. The number of long hedge fund positions were trimmed by 4 lately. Cohu, Inc. (NASDAQ:COHU) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that COHU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 12 hedge funds in our database with COHU holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing Cohu, Inc. (NASDAQ:COHU).
How are hedge funds trading Cohu, Inc. (NASDAQ:COHU)?
At the end of September, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in COHU a year ago. So, let’s review 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, Renaissance Technologies, holds the number one position in Cohu, Inc. (NASDAQ:COHU). Renaissance Technologies has a $27 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, managed by Chuck Royce, which holds a $14.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw and Hoon Kim’s Quantinno Capital. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Cohu, Inc. (NASDAQ:COHU), around 0.31% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.15 percent of its 13F equity portfolio to COHU.
Since Cohu, Inc. (NASDAQ:COHU) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds who were dropping their full holdings by the end of the third quarter. Interestingly, Israel Englander’s Millennium Management cut the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $3.3 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Cohu, Inc. (NASDAQ:COHU). These stocks are German American Bancorp., Inc. (NASDAQ:GABC), Collegium Pharmaceutical Inc (NASDAQ:COLL), Ranpak Holdings Corp (NYSE:PACK), Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS), Scholastic Corp (NASDAQ:SCHL), GoPro Inc (NASDAQ:GPRO), and Enterprise Financial Services Corp (NASDAQ:EFSC). This group of stocks’ market valuations match COHU’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 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $48 million in COHU’s case. Collegium Pharmaceutical Inc (NASDAQ:COLL) is the most popular stock in this table. On the other hand German American Bancorp., Inc. (NASDAQ:GABC) is the least popular one with only 4 bullish hedge fund positions. Cohu, Inc. (NASDAQ:COHU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COHU is 30.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on COHU as the stock returned 77.6% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.