Hedge Funds Taking Some Chips Off The Table

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Microchip Technology Incorporated (NASDAQ:MCHP) based on that data.

Microchip Technology Incorporated (NASDAQ:MCHP) was in 38 hedge funds’ portfolios at the end of the first quarter of 2020. MCHP investors should be aware of a decrease in enthusiasm from smart money of late. There were 46 hedge funds in our database with MCHP positions at the end of the previous quarter. Our calculations also showed that MCHP 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). 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 51 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.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action encompassing Microchip Technology Incorporated (NASDAQ:MCHP).

How are hedge funds trading Microchip Technology Incorporated (NASDAQ:MCHP)?

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in MCHP a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Platinum Asset Management was the largest shareholder of Microchip Technology Incorporated (NASDAQ:MCHP), with a stake worth $193.4 million reported as of the end of September. Trailing Platinum Asset Management was Point72 Asset Management, which amassed a stake valued at $105.3 million. Alkeon Capital Management, Citadel Investment Group, and D E Shaw 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 Platinum Asset Management allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 4.88% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, earmarking 4.74 percent of its 13F equity portfolio to MCHP.

Seeing as Microchip Technology Incorporated (NASDAQ:MCHP) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few money managers who were dropping their entire stakes in the third quarter. Intriguingly, Andrew Weiss’s Weiss Asset Management cut the biggest stake of all the hedgies watched by Insider Monkey, worth an estimated $141 million in stock. Kevin Cottrell and Chris LaSusa’s fund, KCL Capital, also dumped its stock, about $23.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 8 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Microchip Technology Incorporated (NASDAQ:MCHP) but similarly valued. These stocks are Telefonica Brasil SA (NYSE:VIV), Canadian Natural Resources Limited (NYSE:CNQ), Yum China Holdings, Inc. (NYSE:YUMC), and Copart, Inc. (NASDAQ:CPRT). All of these stocks’ market caps are closest to MCHP’s market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIV,8,79400,-4 CNQ,26,107018,-3 YUMC,24,721412,-5 CPRT,48,732842,2 Average,26.5,410168,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $410 million. That figure was $751 million in MCHP’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 8 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on MCHP as the stock returned 42.2% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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