Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title "Recession is Imminent: We Need A Travel Ban NOW". We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 December 31, so let’s proceed with the discussion of the hedge fund sentiment on Microchip Technology Incorporated (NASDAQ:MCHP).
Microchip Technology Incorporated (NASDAQ:MCHP) was in 46 hedge funds' portfolios at the end of the fourth quarter of 2019. MCHP investors should be aware of an increase in hedge fund interest recently. There were 32 hedge funds in our database with MCHP holdings at the end of the previous quarter. Our calculations also showed that MCHP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_339612" align="aligncenter" width="399"] Kerr Neilson of Platinum Asset Management[/caption]
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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we're going to view the new hedge fund action surrounding Microchip Technology Incorporated (NASDAQ:MCHP).
How have hedgies been trading Microchip Technology Incorporated (NASDAQ:MCHP)?
Heading into the first quarter of 2020, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in MCHP a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Microchip Technology Incorporated (NASDAQ:MCHP) was held by Lyrical Asset Management, which reported holding $331.4 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $215.7 million position. Other investors bullish on the company included Point72 Asset Management, Maplelane Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Maplelane Capital allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 5.18% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to MCHP.
As aggregate interest increased, key money managers have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, assembled the most outsized position in Microchip Technology Incorporated (NASDAQ:MCHP). Woodline Partners had $64 million invested in the company at the end of the quarter. Kevin Cottrell and Chris LaSusa's KCL Capital also made a $23.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, Matthew Hulsizer's PEAK6 Capital Management, and Louis Bacon's Moore Global Investments.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Microchip Technology Incorporated (NASDAQ:MCHP) but similarly valued. We will take a look at Digital Realty Trust, Inc. (NYSE:DLR), FleetCor Technologies, Inc. (NYSE:FLT), DTE Energy Company (NYSE:DTE), and McKesson Corporation (NYSE:MCK). This group of stocks' market values are closest to MCHP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DLR,26,175397,7 FLT,44,2121544,-1 DTE,35,1090279,12 MCK,51,2268968,6 Average,39,1414047,6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1414 million. That figure was $1428 million in MCHP's case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Digital Realty Trust, Inc. (NYSE:DLR) is the least popular one with only 26 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately MCHP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MCHP were disappointed as the stock returned -25.3% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.