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Were Hedge Funds Right About Buying Universal Electronics Inc (UEIC)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Universal Electronics Inc (NASDAQ:UEIC) and determine whether hedge funds skillfully traded this stock.

Is Universal Electronics Inc (NASDAQ:UEIC) a safe investment now? The smart money was becoming hopeful. The number of bullish hedge fund bets went up by 1 lately. Our calculations also showed that UEIC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). UEIC was in 13 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with UEIC positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are viewed as worthless, old financial tools of yesteryear. While there are greater than 8000 funds in operation at the moment, Our experts hone in on the crème de la crème of this club, about 850 funds. These hedge fund managers command the lion’s share of the hedge fund industry’s total capital, and by following their unrivaled investments, Insider Monkey has unsheathed a few investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the recent hedge fund action surrounding Universal Electronics Inc (NASDAQ:UEIC).

How have hedgies been trading Universal Electronics Inc (NASDAQ:UEIC)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UEIC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Universal Electronics Inc (NASDAQ:UEIC). Renaissance Technologies has a $7.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is AQR Capital Management, led by Cliff Asness, holding a $4.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Universal Electronics Inc (NASDAQ:UEIC), around 0.7% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to UEIC.

As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Universal Electronics Inc (NASDAQ:UEIC). Marshall Wace LLP had $2.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $1.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Mark Broach’s Manatuck Hill Partners and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Universal Electronics Inc (NASDAQ:UEIC). These stocks are Sleep Number Corporation (NASDAQ:SNBR), NV5 Global Inc (NASDAQ:NVEE), ConnectOne Bancorp Inc (NASDAQ:CNOB), and Bed Bath & Beyond Inc. (NASDAQ:BBBY). This group of stocks’ market values match UEIC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNBR 20 64714 0
NVEE 9 11304 0
CNOB 11 32159 0
BBBY 28 137258 -6
Average 17 61359 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $22 million in UEIC’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand NV5 Global Inc (NASDAQ:NVEE) is the least popular one with only 9 bullish hedge fund positions. Universal Electronics Inc (NASDAQ:UEIC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately UEIC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UEIC investors were disappointed as the stock returned 16.1% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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