Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Advanced Micro Devices, Inc. (NASDAQ:AMD).
Advanced Micro Devices, Inc. (NASDAQ:AMD) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that amd 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' 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 market by 40 percentage points since May 2014 through May 30, 2019. 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.
We're going to view the latest hedge fund action encompassing Advanced Micro Devices, Inc. (NASDAQ:AMD).
At Q1's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AMD over the last 15 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Advanced Micro Devices, Inc. (NASDAQ:AMD). Citadel Investment Group has a $222.2 million call position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Point72 Asset Management, led by Steve Cohen, holding a $134.3 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions contain Brian Ashford-Russell and Tim Woolley's Polar Capital, D. E. Shaw's D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Now, specific money managers were leading the bulls' herd. Tairen Capital, managed by Larry Chen and Terry Zhang, created the most valuable position in Advanced Micro Devices, Inc. (NASDAQ:AMD). Tairen Capital had $102.4 million invested in the company at the end of the quarter. Josh Resnick's Jericho Capital Asset Management also initiated a $59.3 million position during the quarter. The other funds with brand new AMD positions are Ken Griffin's Citadel Investment Group, James Crichton's Hitchwood Capital Management, and Leon Shaulov's Maplelane Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Advanced Micro Devices, Inc. (NASDAQ:AMD) but similarly valued. These stocks are Chunghwa Telecom Co., Ltd (NYSE:CHT), Lam Research Corporation (NASDAQ:LRCX), TE Connectivity Ltd. (NYSE:TEL), and Consolidated Edison, Inc. (NYSE:ED). This group of stocks' market values resemble AMD's market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $893 million. That figure was $980 million in AMD's case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Advanced Micro Devices, Inc. (NASDAQ:AMD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AMD as the stock returned 9.8% during the same period 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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