Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Xperi Corporation (NASDAQ:XPER) to find out whether it was one of their high conviction long-term ideas.
Is Xperi Corporation (NASDAQ:XPER) going to take off soon? Money managers are turning less bullish. The number of bullish hedge fund bets were cut by 2 in recent months. Our calculations also showed that XPER isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). XPER was in 19 hedge funds' portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with XPER holdings at the end of the previous quarter. 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_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/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. We're going to go over the fresh hedge fund action regarding Xperi Corporation (NASDAQ:XPER).
How have hedgies been trading Xperi Corporation (NASDAQ:XPER)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in XPER over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies holds the biggest position in Xperi Corporation (NASDAQ:XPER). Renaissance Technologies has a $34.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is D E Shaw, managed by David E. Shaw, which holds a $32.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Paul Marshall and Ian Wace's Marshall Wace and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to Xperi Corporation (NASDAQ:XPER), around 2.63% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to XPER.
Seeing as Xperi Corporation (NASDAQ:XPER) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds that slashed their entire stakes by the end of the third quarter. At the top of the heap, David Brown's Hawk Ridge Management cut the biggest stake of the 750 funds monitored by Insider Monkey, worth about $7.4 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $2.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Xperi Corporation (NASDAQ:XPER) but similarly valued. We will take a look at Fate Therapeutics Inc (NASDAQ:FATE), Accelerate Diagnostics Inc (NASDAQ:AXDX), MRC Global Inc (NYSE:MRC), and The Buckle, Inc. (NYSE:BKE). All of these stocks' market caps match XPER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FATE,23,417119,5 AXDX,6,50627,-4 MRC,12,73329,-3 BKE,12,43909,-2 Average,13.25,146246,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $115 million in XPER's case. Fate Therapeutics Inc (NASDAQ:FATE) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 6 bullish hedge fund positions. Xperi Corporation (NASDAQ:XPER) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately XPER wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XPER were disappointed as the stock returned -3.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.