Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Power Integrations Inc (NASDAQ:POWI).
Power Integrations Inc (NASDAQ:POWI) was in 9 hedge funds' portfolios at the end of June. POWI investors should be aware of an increase in hedge fund sentiment in recent months. There were 6 hedge funds in our database with POWI positions at the end of the previous quarter. Our calculations also showed that POWI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are a multitude of metrics market participants put to use to grade publicly traded companies. Two of the most underrated metrics are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outperform their index-focused peers by a very impressive margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the new hedge fund action regarding Power Integrations Inc (NASDAQ:POWI).
How are hedge funds trading Power Integrations Inc (NASDAQ:POWI)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in POWI a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Power Integrations Inc (NASDAQ:POWI) was held by Impax Asset Management, which reported holding $78.2 million worth of stock at the end of March. It was followed by PEAK6 Capital Management with a $2.8 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Balyasny Asset Management.
Now, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Power Integrations Inc (NASDAQ:POWI). Balyasny Asset Management had $0.9 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new POWI investors: Hoon Kim's Quantinno Capital and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Power Integrations Inc (NASDAQ:POWI) but similarly valued. We will take a look at KB Home (NYSE:KBH), First Midwest Bancorp Inc (NASDAQ:FMBI), Acadia Realty Trust (NYSE:AKR), and Granite Real Estate Investment Trust (NYSE:GRP). All of these stocks' market caps match POWI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KBH,17,493163,-4 FMBI,14,97354,1 AKR,13,108818,3 GRP,11,114835,-2 Average,13.75,203543,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $83 million in POWI's case. KB Home (NYSE:KBH) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Power Integrations Inc (NASDAQ:POWI) is even less popular than GRP. Hedge funds clearly dropped the ball on POWI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on POWI as the stock returned 13% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.