Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Qorvo Inc (NASDAQ:QRVO) changed recently.
Is Qorvo Inc (NASDAQ:QRVO) the right pick for your portfolio? Hedge funds are buying. The number of bullish hedge fund bets advanced by 7 lately. Our calculations also showed that QRVO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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_26423" align="alignnone" width="600"] Seth Klarman of Baupost Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a look at the fresh hedge fund action regarding Qorvo Inc (NASDAQ:QRVO).
What does smart money think about Qorvo Inc (NASDAQ:QRVO)?
At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in QRVO a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baupost Group, managed by Seth Klarman, holds the biggest position in Qorvo Inc (NASDAQ:QRVO). Baupost Group has a $421.2 million position in the stock, comprising 4.8% of its 13F portfolio. On Baupost Group's heels is Soroban Capital Partners, led by Eric W. Mandelblatt and Gaurav Kapadia, holding a $207.6 million position; the fund has 2.9% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of David Cohen and Harold Levy's Iridian Asset Management, Ken Griffin's Citadel Investment Group and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Baupost Group allocated the biggest weight to Qorvo Inc (NASDAQ:QRVO), around 4.77% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, designating 2.92 percent of its 13F equity portfolio to QRVO.
As industrywide interest jumped, key money managers have jumped into Qorvo Inc (NASDAQ:QRVO) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Qorvo Inc (NASDAQ:QRVO). Arrowstreet Capital had $5.6 million invested in the company at the end of the quarter. Leon Shaulov's Maplelane Capital also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new QRVO investors: Michael Gelband's ExodusPoint Capital, Minhua Zhang's Weld Capital Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Qorvo Inc (NASDAQ:QRVO) but similarly valued. We will take a look at Carlyle Group LP (NASDAQ:CG), Service Corporation International (NYSE:SCI), Credit Acceptance Corp. (NASDAQ:CACC), and LINE Corporation (NYSE:LN). This group of stocks' market valuations resemble QRVO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CG,7,201850,0 SCI,20,352282,5 CACC,23,1026982,-4 LN,7,105831,-2 Average,14.25,421736,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $1241 million in QRVO's case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Carlyle Group LP (NASDAQ:CG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Qorvo Inc (NASDAQ:QRVO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on QRVO as the stock returned 92.6% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.