We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Marvell Technology Group Ltd. (NASDAQ:MRVL).
Marvell Technology Group Ltd. (NASDAQ:MRVL) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. MRVL was in 31 hedge funds' portfolios at the end of September. There were 37 hedge funds in our database with MRVL holdings at the end of the previous quarter. Our calculations also showed that MRVL 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_30602" align="aligncenter" width="489"] Philippe Laffont of Coatue Management[/caption]
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 go over the key hedge fund action regarding Marvell Technology Group Ltd. (NASDAQ:MRVL).
What have hedge funds been doing with Marvell Technology Group Ltd. (NASDAQ:MRVL)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in MRVL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Marvell Technology Group Ltd. (NASDAQ:MRVL), which was worth $192.9 million at the end of the third quarter. On the second spot was Whale Rock Capital Management which amassed $126.6 million worth of shares. Adage Capital Management, Polar Capital, and Fisher Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Crosslink Capital allocated the biggest weight to Marvell Technology Group Ltd. (NASDAQ:MRVL), around 3.38% of its portfolio. Whale Rock Capital Management is also relatively very bullish on the stock, setting aside 2.34 percent of its 13F equity portfolio to MRVL.
Since Marvell Technology Group Ltd. (NASDAQ:MRVL) has experienced declining sentiment from hedge fund managers, we can see that there is a sect of fund managers that slashed their full holdings by the end of the third quarter. It's worth mentioning that Doug Silverman and Alexander Klabin's Senator Investment Group sold off the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $119.4 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $95 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to Marvell Technology Group Ltd. (NASDAQ:MRVL). We will take a look at Credicorp Ltd. (NYSE:BAP), Halliburton Company (NYSE:HAL), International Paper Company (NYSE:IP), and Laboratory Corp. of America Holdings (NYSE:LH). All of these stocks' market caps are similar to MRVL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAP,22,655780,2 HAL,31,817394,-2 IP,27,273248,-4 LH,40,1435297,2 Average,30,795430,-0.5 [/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 $795 million. That figure was $682 million in MRVL's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Marvell Technology Group Ltd. (NASDAQ:MRVL) 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 MRVL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MRVL were disappointed as the stock returned 5.9% 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.