We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Cypress Semiconductor Corporation (NASDAQ:CY).
Is Cypress Semiconductor Corporation (NASDAQ:CY) a buy, sell, or hold? The best stock pickers are becoming less confident. The number of bullish hedge fund bets retreated by 2 recently. Our calculations also showed that CY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746825" align="aligncenter" width="1613"] Matthew Halbower of Pentwater Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the recent hedge fund action surrounding Cypress Semiconductor Corporation (NASDAQ:CY).
What have hedge funds been doing with Cypress Semiconductor Corporation (NASDAQ:CY)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in CY a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Pentwater Capital Management was the largest shareholder of Cypress Semiconductor Corporation (NASDAQ:CY), with a stake worth $224.5 million reported as of the end of September. Trailing Pentwater Capital Management was TIG Advisors, which amassed a stake valued at $182 million. Magnetar Capital, Carlson Capital, and Alpine Associates 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 TIG Advisors allocated the biggest weight to Cypress Semiconductor Corporation (NASDAQ:CY), around 8.36% of its portfolio. Melqart Asset Management is also relatively very bullish on the stock, earmarking 8.1 percent of its 13F equity portfolio to CY.
Judging by the fact that Cypress Semiconductor Corporation (NASDAQ:CY) has faced declining sentiment from hedge fund managers, we can see that there were a few hedgies that slashed their full holdings heading into Q4. At the top of the heap, Nick Niell's Arrowgrass Capital Partners dropped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $40.1 million in stock, and George Soros's Soros Fund Management was right behind this move, as the fund dropped about $36.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Cypress Semiconductor Corporation (NASDAQ:CY) but similarly valued. We will take a look at Juniper Networks, Inc. (NYSE:JNPR), RenaissanceRe Holdings Ltd. (NYSE:RNR), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), and F5 Networks, Inc. (NASDAQ:FFIV). This group of stocks' market caps match CY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JNPR,30,637184,2 RNR,17,657683,-3 SPR,36,2062498,5 FFIV,22,1179111,-1 Average,26.25,1134119,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $1134 million. That figure was $1457 million in CY's case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 17 bullish hedge fund positions. Cypress Semiconductor Corporation (NASDAQ:CY) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CY were disappointed as the stock returned 0.5% during the fourth quarter (through the end of November) 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.