U.S. Markets closed

Were Hedge Funds Right About Flocking Into Monolithic Power Systems, Inc. (MPWR) ?

Abigail Fisher

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Monolithic Power Systems, Inc. (NASDAQ:MPWR) shareholders have witnessed an increase in enthusiasm from smart money of late. MPWR was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with MPWR positions at the end of the previous quarter. Our calculations also showed that MPWR isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MPWR_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the recent hedge fund action encompassing Monolithic Power Systems, Inc. (NASDAQ:MPWR).

Hedge fund activity in Monolithic Power Systems, Inc. (NASDAQ:MPWR)

Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MPWR over the last 16 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Philip Hempleman Ardsley Partners

More specifically, Whale Rock Capital Management was the largest shareholder of Monolithic Power Systems, Inc. (NASDAQ:MPWR), with a stake worth $54.3 million reported as of the end of March. Trailing Whale Rock Capital Management was Polar Capital, which amassed a stake valued at $39.9 million. Osterweis Capital Management, Millennium Management, and Cavalry Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key money managers have jumped into Monolithic Power Systems, Inc. (NASDAQ:MPWR) headfirst. Renaissance Technologies, created the largest position in Monolithic Power Systems, Inc. (NASDAQ:MPWR). Renaissance Technologies had $9.4 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Philip Hempleman's Ardsley Partners, and George Zweig, Shane Haas and Ravi Chander's Signition LP.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Monolithic Power Systems, Inc. (NASDAQ:MPWR) but similarly valued. These stocks are Antero Midstream Corp (NYSE:AM), Vipshop Holdings Limited (NYSE:VIPS), Cullen/Frost Bankers, Inc. (NYSE:CFR), and InterXion Holding NV (NYSE:INXN). This group of stocks' market valuations resemble MPWR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AM,15,234499,-4 VIPS,17,153693,0 CFR,18,63124,0 INXN,34,754902,9 Average,21,301555,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $197 million in MPWR's case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand Antero Midstream Corp (NYSE:AM) is the least popular one with only 15 bullish hedge fund positions. Monolithic Power Systems, Inc. (NASDAQ:MPWR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on MPWR as the stock returned 14.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content