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Super Micro Computer, Inc. (SMCI): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Super Micro Computer, Inc. (NASDAQ:SMCI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Super Micro Computer, Inc. (NASDAQ:SMCI) was in 22 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. SMCI shareholders have witnessed a decrease in hedge fund interest lately. There were 24 hedge funds in our database with SMCI holdings at the end of March. Our calculations also showed that SMCI 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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to go over the recent hedge fund action surrounding Super Micro Computer, Inc. (NASDAQ:SMCI).

How are hedge funds trading Super Micro Computer, Inc. (NASDAQ:SMCI)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in SMCI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SMCI A Good Stock To Buy?

More specifically, Empyrean Capital Partners was the largest shareholder of Super Micro Computer, Inc. (NASDAQ:SMCI), with a stake worth $97.9 million reported as of the end of September. Trailing Empyrean Capital Partners was Oaktree Capital Management, which amassed a stake valued at $93.3 million. Madison Avenue Partners, Hawk Ridge Management, and Mangrove Partners 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 Madison Avenue Partners allocated the biggest weight to Super Micro Computer, Inc. (NASDAQ:SMCI), around 23.76% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, designating 6.46 percent of its 13F equity portfolio to SMCI.

Since Super Micro Computer, Inc. (NASDAQ:SMCI) has experienced declining sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, Israel Englander’s Millennium Management dumped the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $15.9 million in stock, and Youlia Miteva’s Proxima Capital Management was right behind this move, as the fund said goodbye to about $1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Super Micro Computer, Inc. (NASDAQ:SMCI). These stocks are Boise Cascade Co (NYSE:BCC), Rattler Midstream LP (NASDAQ:RTLR), National Research Corporation (NASDAQ:NRC), Scientific Games Corp (NASDAQ:SGMS), Mednax Inc. (NYSE:MD), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), and WSFS Financial Corporation (NASDAQ:WSFS). This group of stocks’ market values are similar to SMCI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCC 13 42926 -5
RTLR 7 94193 -2
NRC 7 49108 -1
SGMS 24 374104 2
MD 23 356799 -3
WSC 31 283379 3
WSFS 17 118488 5
Average 17.4 188428 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $422 million in SMCI’s case. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) is the most popular stock in this table. On the other hand Rattler Midstream LP (NASDAQ:RTLR) is the least popular one with only 7 bullish hedge fund positions. Super Micro Computer, Inc. (NASDAQ:SMCI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SMCI is 61.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately SMCI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SMCI were disappointed as the stock returned -7% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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