You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
United Microelectronics Corp (NYSE:UMC) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of December. At the end of this article we will also compare UMC to other stocks including Texas Roadhouse Inc (NASDAQ:TXRH), First Horizon National Corporation (NYSE:FHN), and Globus Medical Inc (NYSE:GMED) to get a better sense of its popularity.
If you'd ask most market participants, hedge funds are seen as unimportant, old investment tools of the past. While there are more than 8000 funds in operation at present, Our experts hone in on the crème de la crème of this club, approximately 750 funds. These investment experts preside over bulk of the hedge fund industry's total capital, and by monitoring their inimitable stock picks, Insider Monkey has found numerous investment strategies that have historically outpaced the market. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
We're going to take a look at the recent hedge fund action regarding United Microelectronics Corp (NYSE:UMC).
Hedge fund activity in United Microelectronics Corp (NYSE:UMC)
Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UMC over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, LMR Partners was the largest shareholder of United Microelectronics Corp (NYSE:UMC), with a stake worth $30 million reported as of the end of September. Trailing LMR Partners was Renaissance Technologies, which amassed a stake valued at $28 million. Arrowstreet Capital, CQS Cayman LP, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: BlueCrest Capital Mgmt.. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Sensato Capital Management).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as United Microelectronics Corp (NYSE:UMC) but similarly valued. We will take a look at Texas Roadhouse Inc (NASDAQ:TXRH), First Horizon National Corporation (NYSE:FHN), Globus Medical Inc (NYSE:GMED), and MSC Industrial Direct Co Inc (NYSE:MSM). This group of stocks' market valuations are closest to UMC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TXRH,19,115870,0 FHN,19,153737,0 GMED,18,228985,-1 MSM,21,169533,2 Average,19.25,167031,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $82 million in UMC's case. MSC Industrial Direct Co Inc (NYSE:MSM) is the most popular stock in this table. On the other hand Globus Medical Inc (NYSE:GMED) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks United Microelectronics Corp (NYSE:UMC) is even less popular than GMED. Hedge funds dodged a bullet by taking a bearish stance towards UMC. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately UMC wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); UMC investors were disappointed as the stock returned 6.1% 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.