Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to go over the new hedge fund action encompassing MagnaChip Semiconductor Corporation (NYSE:MX).
What does the smart money think about MagnaChip Semiconductor Corporation (NYSE:MX)?
Heading into the second quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in MX a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in MagnaChip Semiconductor Corporation (NYSE:MX) was held by Brigade Capital, which reported holding $27.1 million worth of stock at the end of March. It was followed by Oaktree Capital Management with a $24.1 million position. Other investors bullish on the company included Rubric Capital Management, North Run Capital, and Proxima Capital Management.
Due to the fact that MagnaChip Semiconductor Corporation (NYSE:MX) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few money managers who were dropping their positions entirely in the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group sold off the biggest stake of all the hedgies followed by Insider Monkey, worth an estimated $0.1 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also cut its stock, about $0.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as MagnaChip Semiconductor Corporation (NYSE:MX) but similarly valued. We will take a look at Uranium Energy Corp. (NYSE:UEC), CECO Environmental Corp. (NASDAQ:CECE), Western New England Bancorp, Inc. (NASDAQ:WNEB), and Mersana Therapeutics, Inc. (NASDAQ:MRSN). This group of stocks' market valuations are similar to MX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UEC,9,7730,3 CECE,14,41483,3 WNEB,4,22374,-1 MRSN,16,76424,12 Average,10.75,37003,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $104 million in MX's case. Mersana Therapeutics, Inc. (NASDAQ:MRSN) is the most popular stock in this table. On the other hand Western New England Bancorp, Inc. (NASDAQ:WNEB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks MagnaChip Semiconductor Corporation (NYSE:MX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on MX as the stock returned 10.1% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.