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ASML Holding N.V. (ASML): Hedge Funds Taking Some Chips Off The Table

Abigail Fisher
·7 mins read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ASML Holding N.V. (NASDAQ:ASML) and determine whether hedge funds had an edge regarding this stock.

ASML Holding N.V. (NASDAQ:ASML) was in 25 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. ASML has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 30 hedge funds in our database with ASML positions at the end of the first quarter. Our calculations also showed that ASML 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 glance at the latest hedge fund action surrounding ASML Holding N.V. (NASDAQ:ASML).

What have hedge funds been doing with ASML Holding N.V. (NASDAQ:ASML)?

At second quarter's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in ASML a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in ASML Holding N.V. (NASDAQ:ASML) was held by Fisher Asset Management, which reported holding $1305 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $258.6 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Light Street Capital. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to ASML Holding N.V. (NASDAQ:ASML), around 3.65% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, earmarking 2.57 percent of its 13F equity portfolio to ASML.

Judging by the fact that ASML Holding N.V. (NASDAQ:ASML) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that elected to cut their entire stakes heading into Q3. Interestingly, D. E. Shaw's D E Shaw sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, worth close to $104 million in stock. Fang Zheng's fund, Keywise Capital Management, also dumped its stock, about $29.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q3.

Let's go over hedge fund activity in other stocks similar to ASML Holding N.V. (NASDAQ:ASML). We will take a look at Novo Nordisk A/S (NYSE:NVO), NIKE, Inc. (NYSE:NKE), The Unilever Group (NYSE:UL), Thermo Fisher Scientific Inc. (NYSE:TMO), AstraZeneca plc (NASDAQ:AZN), Amgen, Inc. (NASDAQ:AMGN), and China Mobile Limited (NYSE:CHL). This group of stocks' market values are similar to ASML's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVO,24,3294368,0 NKE,71,2603242,-9 UL,13,149078,0 TMO,73,4525711,-7 AZN,38,1920506,12 AMGN,51,1794209,-1 CHL,9,456289,-2 Average,39.9,2106200,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $2106 million. That figure was $1961 million in ASML's case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 9 bullish hedge fund positions. ASML Holding N.V. (NASDAQ:ASML) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ASML is 37.5. 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. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately ASML wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ASML investors were disappointed as the stock returned -2.1% since Q2 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.

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