Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Littelfuse, Inc. (NASDAQ:LFUS)? The smart money sentiment can provide an answer to this question.
Littelfuse, Inc. (NASDAQ:LFUS) has experienced a decrease in hedge fund sentiment of late. LFUS was in 15 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with LFUS positions at the end of the previous quarter. Our calculations also showed that LFUS isn't among the 30 most popular stocks among hedge funds.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We're going to view the key hedge fund action encompassing Littelfuse, Inc. (NASDAQ:LFUS).
How have hedgies been trading Littelfuse, Inc. (NASDAQ:LFUS)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the second quarter of 2018. On the other hand, there were a total of 16 hedge funds with a bullish position in LFUS a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Littelfuse, Inc. (NASDAQ:LFUS), with a stake worth $92 million reported as of the end of September. Trailing Fisher Asset Management was Ariel Investments, which amassed a stake valued at $76.3 million. Giverny Capital, Renaissance Technologies, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Littelfuse, Inc. (NASDAQ:LFUS) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few funds who sold off their full holdings in the third quarter. Interestingly, Michael Platt and William Reeves's BlueCrest Capital Mgmt. dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $3.6 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $1.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Littelfuse, Inc. (NASDAQ:LFUS). These stocks are Semiconductor Manufacturing International Corporation (NYSE:SMI), Kemper Corporation (NYSE:KMPR), Pivotal Software, Inc. (NYSE:PVTL), and Crane Co. (NYSE:CR). This group of stocks' market values match LFUS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMI,4,6566,-1 KMPR,15,108393,1 PVTL,32,401392,14 CR,23,262775,4 Average,18.5,194782,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $254 million in LFUS's case. Pivotal Software, Inc. (NYSE:PVTL) is the most popular stock in this table. On the other hand Semiconductor Manufacturing International Corporation (NYSE:SMI) is the least popular one with only 4 bullish hedge fund positions. Littelfuse, Inc. (NASDAQ:LFUS) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately LFUS wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); LFUS investors were disappointed as the stock returned 15.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.