U.S. Markets closed

Were Hedge Funds Right About Flocking Into Skyworks Solutions Inc (SWKS)?

Abigail Fisher

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. 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 Skyworks Solutions Inc (NASDAQ:SWKS).

Skyworks Solutions Inc (NASDAQ:SWKS) has seen an increase in hedge fund interest of late. SWKS was in 32 hedge funds' portfolios at the end of December. There were 25 hedge funds in our database with SWKS positions at the end of the previous quarter. Our calculations also showed that SWKS 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' 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson

We're going to check out the fresh hedge fund action regarding Skyworks Solutions Inc (NASDAQ:SWKS).

What does the smart money think about Skyworks Solutions Inc (NASDAQ:SWKS)?

Heading into the first quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in SWKS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SWKS_mar2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Skyworks Solutions Inc (NASDAQ:SWKS). AQR Capital Management has a $194.1 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Alyeska Investment Group, led by Anand Parekh, holding a $145.3 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Kerr Neilson's Platinum Asset Management, Jim Simons's Renaissance Technologies and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Consequently, key hedge funds were leading the bulls' herd. Renaissance Technologies, managed by Jim Simons, assembled the most valuable position in Skyworks Solutions Inc (NASDAQ:SWKS). Renaissance Technologies had $55.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $37.9 million position during the quarter. The following funds were also among the new SWKS investors: Clint Carlson's Carlson Capital, John Hurley's Cavalry Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Skyworks Solutions Inc (NASDAQ:SWKS) but similarly valued. These stocks are Match Group, Inc. (NASDAQ:MTCH), Hologic, Inc. (NASDAQ:HOLX), Teleflex Incorporated (NYSE:TFX), and Rollins, Inc. (NYSE:ROL). This group of stocks' market valuations match SWKS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTCH,24,295721,-5 HOLX,28,803211,6 TFX,15,596575,-2 ROL,22,269805,5 Average,22.25,491328,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $667 million in SWKS's case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Teleflex Incorporated (NYSE:TFX) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Skyworks Solutions Inc (NASDAQ:SWKS) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on SWKS as the stock returned 25.6% and outperformed the market as well.

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

Related Content