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 QUALCOMM, Incorporated (NASDAQ:QCOM).
Is QUALCOMM, Incorporated (NASDAQ:QCOM) ready to rally soon? Prominent investors are turning less bullish. The number of bullish hedge fund positions retreated by 6 lately. Our calculations also showed that QCOM 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.
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 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.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital 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 take a glance at the fresh hedge fund action encompassing QUALCOMM, Incorporated (NASDAQ:QCOM).
How have hedgies been trading QUALCOMM, Incorporated (NASDAQ:QCOM)?
Heading into the fourth quarter of 2019, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in QCOM a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in QUALCOMM, Incorporated (NASDAQ:QCOM), which was worth $355.3 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $314.9 million worth of shares. Matrix Capital Management, Polar Capital, and Citadel Investment Group 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 Think Investments allocated the biggest weight to QUALCOMM, Incorporated (NASDAQ:QCOM), around 9.51% of its portfolio. Valueworks LLC is also relatively very bullish on the stock, setting aside 6.92 percent of its 13F equity portfolio to QCOM.
Seeing as QUALCOMM, Incorporated (NASDAQ:QCOM) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their entire stakes last quarter. At the top of the heap, Christopher James's Partner Fund Management said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $117.1 million in stock, and Doug Silverman and Alexander Klabin's Senator Investment Group was right behind this move, as the fund sold off about $76.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 6 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as QUALCOMM, Incorporated (NASDAQ:QCOM) but similarly valued. These stocks are Charter Communications, Inc. (NASDAQ:CHTR), Rio Tinto Group (NYSE:RIO), U.S. Bancorp (NYSE:USB), and Lowe's Companies, Inc. (NYSE:LOW). This group of stocks' market values match QCOM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHTR,63,8306950,-3 RIO,21,1491441,-3 USB,42,8308441,3 LOW,69,5706061,6 Average,48.75,5953223,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $5953 million. That figure was $1817 million in QCOM's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 21 bullish hedge fund positions. QUALCOMM, Incorporated (NASDAQ:QCOM) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on QCOM, though not to the same extent, as the stock returned 9.5% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.