Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Power Integrations Inc (NASDAQ:POWI) a safe investment right now? The best stock pickers are becoming more confident. The number of long hedge fund positions rose by 3 recently. Our calculations also showed that POWI 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_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the key hedge fund action encompassing Power Integrations Inc (NASDAQ:POWI).
What does smart money think about Power Integrations Inc (NASDAQ:POWI)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards POWI over the last 17 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.
The largest stake in Power Integrations Inc (NASDAQ:POWI) was held by Impax Asset Management, which reported holding $77 million worth of stock at the end of September. It was followed by GLG Partners with a $5.1 million position. Other investors bullish on the company included Driehaus Capital, D E Shaw, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Power Integrations Inc (NASDAQ:POWI), around 1% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to POWI.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the largest position in Power Integrations Inc (NASDAQ:POWI). Driehaus Capital had $4.6 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $3.4 million position during the quarter. The following funds were also among the new POWI investors: Cliff Asness's AQR Capital Management and Steve Cohen's Point72 Asset Management.
Let's check out hedge fund activity in other stocks similar to Power Integrations Inc (NASDAQ:POWI). These stocks are Pattern Energy Group Inc (NASDAQ:PEGI), BlackLine, Inc. (NASDAQ:BL), Genesis Energy, L.P. (NYSE:GEL), and Piedmont Office Realty Trust, Inc. (NYSE:PDM). This group of stocks' market values resemble POWI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEGI,13,51412,1 BL,14,125393,-1 GEL,2,21756,-2 PDM,8,83825,-4 Average,9.25,70597,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $98 million in POWI's case. BlackLine, Inc. (NASDAQ:BL) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 2 bullish hedge fund positions. Power Integrations Inc (NASDAQ:POWI) 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 POWI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on POWI were disappointed as the stock returned 1.4% 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.