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Were Hedge Funds Right About Littelfuse, Inc. (LFUS)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Littelfuse, Inc. (NASDAQ:LFUS) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Littelfuse, Inc. (NASDAQ:LFUS) worth your attention right now? The best stock pickers were taking a bullish view. The number of long hedge fund positions advanced by 1 in recent months. Our calculations also showed that LFUS 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).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar CapitalMagnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a look at the new hedge fund action encompassing Littelfuse, Inc. (NASDAQ:LFUS).

What have hedge funds been doing with Littelfuse, Inc. (NASDAQ:LFUS)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in LFUS a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Impax Asset Management held the most valuable stake in Littelfuse, Inc. (NASDAQ:LFUS), which was worth $69.3 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $52.5 million worth of shares. Fisher Asset Management, D E Shaw, and Giverny Capital 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 Ayrshire Capital Management allocated the biggest weight to Littelfuse, Inc. (NASDAQ:LFUS), around 1.86% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to LFUS.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Littelfuse, Inc. (NASDAQ:LFUS). Citadel Investment Group had $1.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.3 million investment in the stock during the quarter. The other funds with brand new LFUS positions are Peter Muller’s PDT Partners, Alec Litowitz and Ross Laser’s Magnetar Capital, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Littelfuse, Inc. (NASDAQ:LFUS) but similarly valued. These stocks are Globant SA (NYSE:GLOB), Axis Capital Holdings Limited (NYSE:AXS), Cyberark Software Ltd (NASDAQ:CYBR), and New Jersey Resources Corp (NYSE:NJR). This group of stocks’ market caps are closest to LFUS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLOB 17 81232 -1
AXS 32 593560 -2
CYBR 14 133983 -6
NJR 14 36464 -6
Average 19.25 211310 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $218 million in LFUS’s case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Cyberark Software Ltd (NASDAQ:CYBR) is the least popular one with only 14 bullish hedge fund positions. Littelfuse, Inc. (NASDAQ:LFUS) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LFUS as the stock returned 28.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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