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Were Hedge Funds Right About NeoPhotonics Corp (NPTN)?

·5 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of NeoPhotonics Corp (NYSE:NPTN).

NeoPhotonics Corp (NYSE:NPTN) shareholders have witnessed a decrease in hedge fund sentiment recently. NeoPhotonics Corp (NYSE:NPTN) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that NPTN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jamie Zimmerman of Litespeed Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's analyze the fresh hedge fund action regarding NeoPhotonics Corp (NYSE:NPTN).

Do Hedge Funds Think NPTN Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NPTN over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of NeoPhotonics Corp (NYSE:NPTN), with a stake worth $30.4 million reported as of the end of March. Trailing Renaissance Technologies was Masters Capital Management, which amassed a stake valued at $12 million. Litespeed Management, Arrowstreet Capital, and Two Sigma Advisors 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 Litespeed Management allocated the biggest weight to NeoPhotonics Corp (NYSE:NPTN), around 12.45% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, setting aside 0.4 percent of its 13F equity portfolio to NPTN.

Since NeoPhotonics Corp (NYSE:NPTN) has experienced declining sentiment from hedge fund managers, logic holds that there were a few hedge funds that elected to cut their full holdings heading into Q2. At the top of the heap, D. E. Shaw's D E Shaw dumped the largest position of the 750 funds watched by Insider Monkey, comprising about $0.9 million in stock. John A. Levin's fund, Levin Capital Strategies, also said goodbye to its stock, about $0.5 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds heading into Q2.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as NeoPhotonics Corp (NYSE:NPTN) but similarly valued. These stocks are Hanmi Financial Corp (NASDAQ:HAFC), Hingham Institution for Savings (NASDAQ:HIFS), CURO Group Holdings Corp. (NYSE:CURO), Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM), Capstead Mortgage Corporation (NYSE:CMO), ORBCOMM Inc (NASDAQ:ORBC), and Triterras, Inc. (NASDAQ:TRIT). This group of stocks' market caps match NPTN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HAFC,13,35667,0 HIFS,2,7472,1 CURO,22,102355,2 MIRM,11,208047,-6 CMO,8,52229,-6 ORBC,19,85660,3 TRIT,12,26322,0 Average,12.4,73965,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $78 million in NPTN's case. CURO Group Holdings Corp. (NYSE:CURO) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 2 bullish hedge fund positions. NeoPhotonics Corp (NYSE:NPTN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NPTN is 62.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately NPTN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NPTN were disappointed as the stock returned -24% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potentiacsl, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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