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Here’s What Hedge Funds Think About ON Semiconductor Corporation (ON)

Reymerlyn Martin

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.

ON Semiconductor Corporation (NASDAQ:ON) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. ON was in 22 hedge funds' portfolios at the end of September. There were 26 hedge funds in our database with ON positions at the end of the previous quarter. Our calculations also showed that ON 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.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? 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_337903" align="aligncenter" width="2480"] Clifton Robbins of Blue Harbour Group[/caption]

Clifton Robbins Blue Harbour

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 take a gander at the latest hedge fund action regarding ON Semiconductor Corporation (NASDAQ:ON).

How are hedge funds trading ON Semiconductor Corporation (NASDAQ:ON)?

At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ON over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ON Semiconductor Corporation (NASDAQ:ON) was held by Blue Harbour Group, which reported holding $83.1 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $81.1 million position. Other investors bullish on the company included AQR Capital Management, Simcoe Capital Management, and Rima Senvest Management. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to ON Semiconductor Corporation (NASDAQ:ON), around 10.06% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, designating 4.87 percent of its 13F equity portfolio to ON.

Seeing as ON Semiconductor Corporation (NASDAQ:ON) has faced bearish sentiment from the smart money, it's easy to see that there exists a select few money managers that slashed their entire stakes heading into Q4. At the top of the heap, Renaissance Technologies sold off the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $23.1 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund sold off about $11.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks similar to ON Semiconductor Corporation (NASDAQ:ON). We will take a look at Zions Bancorporation (NASDAQ:ZION), Kilroy Realty Corp (NYSE:KRC), PTC Inc (NASDAQ:PTC), and Athene Holding Ltd. (NYSE:ATH). All of these stocks' market caps are closest to ON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZION,29,468677,-6 KRC,23,218142,7 PTC,29,809421,6 ATH,39,1453694,0 Average,30,737484,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $737 million. That figure was $428 million in ON's case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Kilroy Realty Corp (NYSE:KRC) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks ON Semiconductor Corporation (NASDAQ:ON) is even less popular than KRC. Hedge funds clearly dropped the ball on ON as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on ON as the stock returned 11.8% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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