A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let's study the hedge fund sentiment to see how those concerns affected their ownership of Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) during the quarter.
Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) investors should be aware of an increase in enthusiasm from smart money lately. KLIC was in 22 hedge funds' portfolios at the end of September. There were 20 hedge funds in our database with KLIC holdings at the end of the previous quarter. Our calculations also showed that KLIC isn't among the 30 most popular stocks among hedge funds.
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' 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let's view the recent hedge fund action encompassing Kulicke and Soffa Industries Inc. (NASDAQ:KLIC).
How are hedge funds trading Kulicke and Soffa Industries Inc. (NASDAQ:KLIC)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the second quarter of 2018. By comparison, 26 hedge funds held shares or bullish call options in KLIC heading into this year. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), which was worth $111.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $38.5 million worth of shares. Moreover, D E Shaw, Two Sigma Advisors, and Whale Rock Capital Management were also bullish on Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), allocating a large percentage of their portfolios to this stock.
Now, key hedge funds were breaking ground themselves. Maverick Capital, managed by Lee Ainslie, established the most outsized position in Kulicke and Soffa Industries Inc. (NASDAQ:KLIC). Maverick Capital had $7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $3.3 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Kulicke and Soffa Industries Inc. (NASDAQ:KLIC). We will take a look at Matthews International Corp (NASDAQ:MATW), MicroStrategy Incorporated (NASDAQ:MSTR), Nexa Resources S.A. (NYSE:NEXA), and Skyline Champion Corporation (NYSE:SKY). All of these stocks' market caps are closest to KLIC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MATW,12,51902,1 MSTR,25,232294,5 NEXA,9,20541,1 SKY,23,539433,8 Average,17.25,211043,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $257 million in KLIC's case. MicroStrategy Incorporated (NASDAQ:MSTR) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 9 bullish hedge fund positions. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) 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. In this regard MSTR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.