These Hedge Funds Were Too Early Dumping Advanced Micro Devices, Inc. (AMD)

Abigail Fisher
·6 min read

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Advanced Micro Devices, Inc. (NASDAQ:AMD)? The smart money sentiment can provide an answer to this question.

Is Advanced Micro Devices, Inc. (NASDAQ:AMD) a worthy investment right now? The smart money was selling. The number of long hedge fund positions dropped by 11 recently. Advanced Micro Devices, Inc. (NASDAQ:AMD) was in 51 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 62. Our calculations also showed that AMD isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

To the average investor there are a large number of tools stock traders have at their disposal to size up their stock investments. Some of the best tools are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best money managers can outpace the S&P 500 by a superb amount (see the details here).

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let's take a look at the fresh hedge fund action regarding Advanced Micro Devices, Inc. (NASDAQ:AMD).

Hedge fund activity in Advanced Micro Devices, Inc. (NASDAQ:AMD)

At second quarter's end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in AMD a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Advanced Micro Devices, Inc. (NASDAQ:AMD), with a stake worth $493.2 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $458.2 million. Fisher Asset Management, Arrowstreet Capital, and GQG Partners 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 Kadensa Capital allocated the biggest weight to Advanced Micro Devices, Inc. (NASDAQ:AMD), around 16.99% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, setting aside 5.21 percent of its 13F equity portfolio to AMD.

Seeing as Advanced Micro Devices, Inc. (NASDAQ:AMD) has faced falling interest from the smart money, it's easy to see that there lies a certain "tier" of hedgies that decided to sell off their full holdings last quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management sold off the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising about $53.8 million in stock, and Larry Chen and Terry Zhang's Tairen Capital was right behind this move, as the fund said goodbye to about $50.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 11 funds last quarter.

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. We will take a look at Enbridge Inc (NYSE:ENB), The TJX Companies, Inc. (NYSE:TJX), Target Corporation (NYSE:TGT), General Electric Company (NYSE:GE), NetEase, Inc (NASDAQ:NTES), Duke Energy Corporation (NYSE:DUK), and Activision Blizzard, Inc. (NASDAQ:ATVI). This group of stocks' market caps match AMD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENB,28,379932,3 TJX,72,2347508,3 TGT,54,3159010,0 GE,57,3186232,-1 NTES,38,4594320,-1 DUK,33,906929,-2 ATVI,97,3564560,-4 Average,54.1,2591213,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.1 hedge funds with bullish positions and the average amount invested in these stocks was $2591 million. That figure was $2569 million in AMD's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 28 bullish hedge fund positions. Advanced Micro Devices, Inc. (NASDAQ:AMD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AMD is 35.3. 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. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on AMD as the stock returned 55.8% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.

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

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