Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Microchip Technology Incorporated (NASDAQ:MCHP).
Is MCHP stock a buy or sell? The smart money was in an optimistic mood. The number of long hedge fund bets went up by 10 in recent months. Microchip Technology Incorporated (NASDAQ:MCHP) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic is 46. Our calculations also showed that MCHP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 35 hedge funds in our database with MCHP positions at the end of the third quarter.
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 124 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 leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind let’s view the fresh hedge fund action regarding Microchip Technology Incorporated (NASDAQ:MCHP).
Do Hedge Funds Think MCHP Is A Good Stock To Buy Now?
At the end of December, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCHP over the last 22 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Platinum Asset Management held the most valuable stake in Microchip Technology Incorporated (NASDAQ:MCHP), which was worth $286.5 million at the end of the fourth quarter. On the second spot was Point72 Asset Management which amassed $145.1 million worth of shares. D E Shaw, Generation Investment Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Platinum Asset Management allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 6.59% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, earmarking 4.37 percent of its 13F equity portfolio to MCHP.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Cavalry Asset Management, managed by John Hurley, established the most outsized position in Microchip Technology Incorporated (NASDAQ:MCHP). Cavalry Asset Management had $38.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $26.8 million position during the quarter. The following funds were also among the new MCHP investors: David Fiszel’s Honeycomb Asset Management, Brandon Haley’s Holocene Advisors, and Suraj Parkash Chopra’s Force Hill Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Microchip Technology Incorporated (NASDAQ:MCHP). We will take a look at Cintas Corporation (NASDAQ:CTAS), Chewy, Inc. (NYSE:CHWY), MSCI Inc (NYSE:MSCI), Brown-Forman Corporation (NYSE:BF), ING Groep N.V. (NYSE:ING), Sempra Energy (NYSE:SRE), and Eni SpA (NYSE:E). This group of stocks’ market valuations are closest to MCHP’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 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $750 million. That figure was $961 million in MCHP’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Microchip Technology Incorporated (NASDAQ:MCHP) is more popular among hedge funds. Our overall hedge fund sentiment score for MCHP is 89.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on MCHP as the stock returned 8.9% since the end of December (through 3/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.