How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Amkor Technology, Inc. (NASDAQ:AMKR) and determine whether hedge funds had an edge regarding this stock.
Is Amkor Technology, Inc. (NASDAQ:AMKR) a bargain? Hedge funds were getting less bullish. The number of bullish hedge fund positions shrunk by 1 in recent months. Our calculations also showed that AMKR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AMKR was in 28 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with AMKR positions at the end of the previous quarter. Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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. Now let’s take a gander at the fresh hedge fund action surrounding Amkor Technology, Inc. (NASDAQ:AMKR).
How have hedgies been trading Amkor Technology, Inc. (NASDAQ:AMKR)?
Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in AMKR a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the most valuable position in Amkor Technology, Inc. (NASDAQ:AMKR), worth close to $16.3 million, comprising less than 0.1%% of its total 13F portfolio. On Arrowstreet Capital’s heels is D E Shaw, led by D. E. Shaw, holding a $14.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Amkor Technology, Inc. (NASDAQ:AMKR), around 0.17% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.14 percent of its 13F equity portfolio to AMKR.
Because Amkor Technology, Inc. (NASDAQ:AMKR) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at about $19.5 million in stock. Minhua Zhang’s fund, Weld Capital Management, also cut its stock, about $1.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Amkor Technology, Inc. (NASDAQ:AMKR) but similarly valued. We will take a look at First Interstate Bancsystem Inc (NASDAQ:FIBK), Commercial Metals Company (NYSE:CMC), National General Holdings Corp (NASDAQ:NGHC), and Northwest Natural Holding Company (NYSE:NWN). This group of stocks’ market caps match AMKR’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIBK,7,31332,-5 CMC,19,187336,-8 NGHC,18,186028,2 NWN,17,60220,0 Average,15.25,116229,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $86 million in AMKR’s case. Commercial Metals Company (NYSE:CMC) is the most popular stock in this table. On the other hand First Interstate Bancsystem Inc (NASDAQ:FIBK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Amkor Technology, Inc. (NASDAQ:AMKR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on AMKR as the stock returned 58% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.