Were Hedge Funds Right About Piling Into Inphi Corporation (IPHI)?

In this article we will take a look at whether hedge funds think Inphi Corporation (NASDAQ:IPHI) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Inphi Corporation (NASDAQ:IPHI) going to take off soon? Hedge funds were getting more optimistic. The number of bullish hedge fund positions advanced by 10 recently. Inphi Corporation (NASDAQ:IPHI) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that IPHI 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.

In the 21st century investor’s toolkit there are plenty of tools market participants employ to appraise stocks. A duo of the most innovative tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace their index-focused peers by a solid amount (see the details here).

Discovery Capital Management

Rob Citrone of Discovery Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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 let’s take a look at the key hedge fund action encompassing Inphi Corporation (NASDAQ:IPHI).

How are hedge funds trading Inphi Corporation (NASDAQ:IPHI)?

At second quarter’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IPHI over the last 20 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the most valuable position in Inphi Corporation (NASDAQ:IPHI), worth close to $111.1 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, founded by Jim Simons, which holds a $103.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Discovery Capital Management allocated the biggest weight to Inphi Corporation (NASDAQ:IPHI), around 6.78% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, setting aside 6.39 percent of its 13F equity portfolio to IPHI.

As industrywide interest jumped, key hedge funds have jumped into Inphi Corporation (NASDAQ:IPHI) headfirst. Discovery Capital Management, managed by Rob Citrone, assembled the most valuable position in Inphi Corporation (NASDAQ:IPHI). Discovery Capital Management had $37.3 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also initiated a $22.5 million position during the quarter. The other funds with new positions in the stock are Michael R. Weisberg’s Crestwood Capital Management, Greg Eisner’s Engineers Gate Manager, and Kevin McCarthy’s Breakline Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Inphi Corporation (NASDAQ:IPHI) but similarly valued. These stocks are Autoliv Inc. (NYSE:ALV), HD Supply Holdings Inc (NASDAQ:HDS), Apartment Investment and Management Co. (NYSE:AIV), AppFolio Inc (NASDAQ:APPF), Zions Bancorporation, National Association (NASDAQ:ZION), Ingredion Incorporated (NYSE:INGR), and Kimco Realty Corp (NYSE:KIM). All of these stocks’ market caps resemble IPHI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALV 22 542948 7
HDS 44 992771 4
AIV 24 488634 3
APPF 21 400415 2
ZION 24 66065 -9
INGR 22 226529 4
KIM 28 171160 6
Average 26.4 412646 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $643 million in IPHI’s case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand AppFolio Inc (NASDAQ:APPF) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Inphi Corporation (NASDAQ:IPHI) is more popular among hedge funds. Our overall hedge fund sentiment score for IPHI is 90. 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. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately IPHI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IPHI were disappointed as the stock returned 0.7% since the end of the second quarter (through 10/23) 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.