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Hedge Funds Are Buying Diodes Incorporated (DIOD)

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on Diodes Incorporated (NASDAQ:DIOD).

Diodes Incorporated (NASDAQ:DIOD) has seen an increase in enthusiasm from smart money in recent months. Diodes Incorporated (NASDAQ:DIOD) was in 21 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that DIOD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce
Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's analyze the latest hedge fund action surrounding Diodes Incorporated (NASDAQ:DIOD).

Do Hedge Funds Think DIOD Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DIOD over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DIOD A Good Stock To Buy?
Is DIOD A Good Stock To Buy?

Among these funds, Adage Capital Management held the most valuable stake in Diodes Incorporated (NASDAQ:DIOD), which was worth $67.2 million at the end of the fourth quarter. On the second spot was Royce & Associates which amassed $26.7 million worth of shares. Fisher Asset Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Roubaix Capital allocated the biggest weight to Diodes Incorporated (NASDAQ:DIOD), around 1.7% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to DIOD.

Consequently, key money managers have jumped into Diodes Incorporated (NASDAQ:DIOD) headfirst. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Diodes Incorporated (NASDAQ:DIOD). Citadel Investment Group had $9.7 million invested in the company at the end of the quarter. Christopher Hillary's Roubaix Capital also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Roger Ibbotson's Zebra Capital Management, Michael Gelband's ExodusPoint Capital, and Greg Eisner's Engineers Gate Manager.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Diodes Incorporated (NASDAQ:DIOD) but similarly valued. These stocks are SPS Commerce, Inc. (NASDAQ:SPSC), Bed Bath & Beyond Inc. (NASDAQ:BBBY), Cronos Group Inc. (NASDAQ:CRON), Ambarella Inc (NASDAQ:AMBA), Dana Incorporated (NYSE:DAN), CareDx, Inc. (NASDAQ:CDNA), and Mantech International Corp (NASDAQ:MANT). This group of stocks' market valuations resemble DIOD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPSC,20,133241,6 BBBY,23,314226,-10 CRON,10,126181,-1 AMBA,35,286944,-1 DAN,26,545924,-2 CDNA,23,693239,3 MANT,14,34971,3 Average,21.6,304961,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $305 million. That figure was $161 million in DIOD's case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 10 bullish hedge fund positions. Diodes Incorporated (NASDAQ:DIOD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DIOD is 59.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately DIOD wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DIOD investors were disappointed as the stock returned -7.9% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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