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How Did Ambarella Inc (AMBA) Perform In Comparison to Hedge Fund Favorites in 2019?

Nina Todic

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Ambarella Inc (NASDAQ:AMBA)?

Ambarella Inc (NASDAQ:AMBA) investors should pay attention to an increase in support from the world's most elite money managers in recent months. Our calculations also showed that AMBA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's review the new hedge fund action regarding Ambarella Inc (NASDAQ:AMBA).

How have hedgies been trading Ambarella Inc (NASDAQ:AMBA)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AMBA over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ambarella Inc (NASDAQ:AMBA) was held by D E Shaw, which reported holding $61.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $49.5 million position. Other investors bullish on the company included Columbus Circle Investors, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Potrero Capital Research allocated the biggest weight to Ambarella Inc (NASDAQ:AMBA), around 4.26% of its 13F portfolio. P.A.W. Capital Partners is also relatively very bullish on the stock, setting aside 3.13 percent of its 13F equity portfolio to AMBA.

As aggregate interest increased, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in Ambarella Inc (NASDAQ:AMBA). Arrowstreet Capital had $14.1 million invested in the company at the end of the quarter. Ken Fisher's Fisher Asset Management also initiated a $6.9 million position during the quarter. The following funds were also among the new AMBA investors: David E. Shaw's D E Shaw, Cliff Asness's AQR Capital Management, and Mike Vranos's Ellington.

Let's check out hedge fund activity in other stocks similar to Ambarella Inc (NASDAQ:AMBA). We will take a look at ESCO Technologies Inc. (NYSE:ESE), Ladder Capital Corp (NYSE:LADR), Core Laboratories N.V. (NYSE:CLB), and National Beverage Corp. (NASDAQ:FIZZ). This group of stocks' market values are similar to AMBA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESE,8,3101,4 LADR,12,46418,-1 CLB,14,150203,-7 FIZZ,15,286562,-7 Average,12.25,121571,-2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $255 million in AMBA's case. National Beverage Corp. (NASDAQ:FIZZ) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Ambarella Inc (NASDAQ:AMBA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AMBA as the stock returned 73.1% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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