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Were Hedge Funds Right About Flocking Into Cirrus Logic, Inc. (CRUS) ?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Cirrus Logic, Inc. (NASDAQ:CRUS).

Is Cirrus Logic, Inc. (NASDAQ:CRUS) going to take off soon? Hedge funds are in an optimistic mood. The number of long hedge fund bets moved up by 6 in recent months. Our calculations also showed that CRUS isn’t among the 30 most popular stocks among hedge funds (view video below). CRUS was in 23 hedge funds’ portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with CRUS holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action regarding Cirrus Logic, Inc. (NASDAQ:CRUS).

What does smart money think about Cirrus Logic, Inc. (NASDAQ:CRUS)?

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in CRUS 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.

No of Hedge Funds with CRUS Positions

More specifically, AQR Capital Management was the largest shareholder of Cirrus Logic, Inc. (NASDAQ:CRUS), with a stake worth $121.2 million reported as of the end of March. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $50 million. GLG Partners, Royce & Associates, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key hedge funds have been driving this bullishness. Centiva Capital, managed by Karim Abbadi and Edward McBride, initiated the biggest position in Cirrus Logic, Inc. (NASDAQ:CRUS). Centiva Capital had $1.8 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $1.1 million position during the quarter. The other funds with brand new CRUS positions are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Michael Gelband’s ExodusPoint Capital, and Hoon Kim’s Quantinno Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cirrus Logic, Inc. (NASDAQ:CRUS) but similarly valued. We will take a look at Brady Corporation (NYSE:BRC), Cadence Bancorporation (NYSE:CADE), Lions Gate Entertainment Corp. (NYSE:LGF-A), and Spectrum Brands Holdings, Inc. (NYSE:SPB). This group of stocks’ market valuations match CRUS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRC 13 188953 -2
CADE 18 149254 -4
LGF-A 21 251448 3
SPB 24 835470 2
Average 19 356281 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $356 million. That figure was $290 million in CRUS’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand Brady Corporation (NYSE:BRC) is the least popular one with only 13 bullish hedge fund positions. Cirrus Logic, Inc. (NASDAQ:CRUS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CRUS as the stock returned 22.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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