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Were Hedge Funds Right About NXP Semiconductors NV (NXPI)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards NXP Semiconductors NV (NASDAQ:NXPI).

NXP Semiconductors NV (NASDAQ:NXPI) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that NXPI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the fresh hedge fund action encompassing NXP Semiconductors NV (NASDAQ:NXPI).

How are hedge funds trading NXP Semiconductors NV (NASDAQ:NXPI)?

Heading into the first quarter of 2020, a total of 80 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NXPI over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Soroban Capital Partners held the most valuable stake in NXP Semiconductors NV (NASDAQ:NXPI), which was worth $643.3 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $398.2 million worth of shares. Point72 Asset Management, Southpoint Capital Advisors, and Arrowstreet 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 Totem Point Management allocated the biggest weight to NXP Semiconductors NV (NASDAQ:NXPI), around 13.9% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 10.62 percent of its 13F equity portfolio to NXPI.

As aggregate interest increased, key money managers have jumped into NXP Semiconductors NV (NASDAQ:NXPI) headfirst. Jericho Capital Asset Management, managed by Josh Resnick, assembled the largest position in NXP Semiconductors NV (NASDAQ:NXPI). Jericho Capital Asset Management had $127 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also made a $89.5 million investment in the stock during the quarter. The other funds with brand new NXPI positions are Dmitry Balyasny’s Balyasny Asset Management, Mikal Patel’s Oribel Capital Management, and Gordon W Malin’s Mountain Road Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NXP Semiconductors NV (NASDAQ:NXPI) but similarly valued. These stocks are Travelers Companies Inc (NYSE:TRV), Canadian Pacific Railway Limited (NYSE:CP), Carnival Corporation & Plc (NYSE:CCL), and Energy Transfer L.P. (NYSE:ET). This group of stocks’ market values are similar to NXPI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRV 39 906120 1
CP 29 1760164 -4
CCL 34 895329 4
ET 36 718963 2
Average 34.5 1070144 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1070 million. That figure was $3769 million in NXPI’s case. Travelers Companies Inc (NYSE:TRV) is the most popular stock in this table. On the other hand Canadian Pacific Railway Limited (NYSE:CP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks NXP Semiconductors NV (NASDAQ:NXPI) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately NXPI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NXPI were disappointed as the stock returned -31.6% during the three months of 2020 (through April 20th) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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