We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Monolithic Power Systems, Inc. (NASDAQ:MPWR) and determine whether hedge funds skillfully traded this stock.
Monolithic Power Systems, Inc. (NASDAQ:MPWR) has experienced an increase in activity from the world's largest hedge funds of late. Monolithic Power Systems, Inc. (NASDAQ:MPWR) was in 36 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 23 hedge funds in our database with MPWR holdings at the end of March. Our calculations also showed that MPWR 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 financial world there are a large number of metrics stock market investors put to use to size up publicly traded companies. A pair of the most underrated metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top investment managers can beat the market by a solid margin (see the details here).
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let's take a gander at the latest hedge fund action surrounding Monolithic Power Systems, Inc. (NASDAQ:MPWR).
Hedge fund activity in Monolithic Power Systems, Inc. (NASDAQ:MPWR)
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the first quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in MPWR a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alex Sacerdote's Whale Rock Capital Management has the most valuable position in Monolithic Power Systems, Inc. (NASDAQ:MPWR), worth close to $187.7 million, accounting for 1.5% of its total 13F portfolio. On Whale Rock Capital Management's heels is Rajiv Jain of GQG Partners, with a $181.3 million position; 0.8% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish encompass John Hurley's Cavalry Asset Management, Renaissance Technologies and John Osterweis's Osterweis Capital Management. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Monolithic Power Systems, Inc. (NASDAQ:MPWR), around 6.64% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, setting aside 1.71 percent of its 13F equity portfolio to MPWR.
Consequently, key hedge funds have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, assembled the biggest position in Monolithic Power Systems, Inc. (NASDAQ:MPWR). Woodline Partners had $9.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $4.3 million position during the quarter. The following funds were also among the new MPWR investors: Benjamin A. Smith's Laurion Capital Management, Joel Greenblatt's Gotham Asset Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's go over hedge fund activity in other stocks similar to Monolithic Power Systems, Inc. (NASDAQ:MPWR). We will take a look at argenx SE (NASDAQ:ARGX), Molina Healthcare, Inc. (NYSE:MOH), Royal Caribbean Group (NYSE:RCL), Avalara, Inc. (NYSE:AVLR), CBOE Global Markets Inc (NASDAQ:CBOE), Huazhu Group Limited (NASDAQ:HTHT), and Icahn Enterprises LP (NASDAQ:IEP). This group of stocks' market valuations are closest to MPWR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARGX,29,1157644,4 MOH,34,1316051,2 RCL,31,381178,6 AVLR,37,1446149,3 CBOE,32,840386,-6 HTHT,17,381209,0 IEP,3,9994902,0 Average,26.1,2216788,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $2217 million. That figure was $556 million in MPWR's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 3 bullish hedge fund positions. Monolithic Power Systems, Inc. (NASDAQ:MPWR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MPWR is 88.5. 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 positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately MPWR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MPWR were disappointed as the stock returned 12.7% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.