In this article we will check out the progression of hedge fund sentiment towards Power Integrations Inc (NASDAQ:POWI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is POWI a good stock to buy now? The smart money was getting more bullish. The number of long hedge fund bets rose by 3 recently. Power Integrations Inc (NASDAQ:POWI) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 21. Our calculations also showed that POWI 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).
Video: 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 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 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.
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 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a look at the recent hedge fund action regarding Power Integrations Inc (NASDAQ:POWI).
Do Hedge Funds Think POWI Is A Good Stock To Buy Now?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in POWI over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Power Integrations Inc (NASDAQ:POWI) was held by Polar Capital, which reported holding $61.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $18.5 million position. Other investors bullish on the company included Two Sigma Advisors, GLG Partners, and Winton Capital Management. In terms of the portfolio weights assigned to each position Provenire Capital allocated the biggest weight to Power Integrations Inc (NASDAQ:POWI), around 0.85% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to POWI.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in Power Integrations Inc (NASDAQ:POWI). Two Sigma Advisors had $7.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Israel Englander’s Millennium Management, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to Power Integrations Inc (NASDAQ:POWI). We will take a look at Companhia Brasileira de Distribuição (NYSE:CBD), New Residential Investment Corp (NYSE:NRZ), EQT Corporation (NYSE:EQT), Granite Real Estate Investment Trust (NYSE:GRP), Saia Inc (NASDAQ:SAIA), J2 Global Inc (NASDAQ:JCOM), and Armstrong World Industries, Inc. (NYSE:AWI). This group of stocks’ market values are similar to POWI’s market value.
|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 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $110 million in POWI’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 6 bullish hedge fund positions. Power Integrations Inc (NASDAQ:POWI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for POWI is 57.8. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on POWI as the stock returned 35.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.