We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Marvell Technology Group Ltd. (NASDAQ:MRVL) and determine whether hedge funds skillfully traded this stock.
Hedge fund interest in Marvell Technology Group Ltd. (NASDAQ:MRVL) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Okta, Inc. (NASDAQ:OKTA), Carrier Global Corporation (NYSE:CARR), and Slack Technologies Inc (NYSE:WORK) to gather more data points. Our calculations also showed that MRVL 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 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.
Dmitry Balyasny of Balyasny Asset Management
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. With all of this in mind let’s take a glance at the key hedge fund action encompassing Marvell Technology Group Ltd. (NASDAQ:MRVL).
What have hedge funds been doing with Marvell Technology Group Ltd. (NASDAQ:MRVL)?
Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MRVL over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Marvell Technology Group Ltd. (NASDAQ:MRVL), which was worth $168.8 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $63.1 million worth of shares. Fisher Asset Management, Holocene Advisors, and Cavalry Asset Management 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 Crosslink Capital allocated the biggest weight to Marvell Technology Group Ltd. (NASDAQ:MRVL), around 3.69% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, dishing out 3.65 percent of its 13F equity portfolio to MRVL.
Judging by the fact that Marvell Technology Group Ltd. (NASDAQ:MRVL) has witnessed a decline in interest from the smart money, it’s easy to see that there was a specific group of hedgies who were dropping their full holdings heading into Q4. It’s worth mentioning that Alex Sacerdote’s Whale Rock Capital Management dumped the largest stake of all the hedgies followed by Insider Monkey, totaling about $111.5 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also cut its stock, about $48.8 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marvell Technology Group Ltd. (NASDAQ:MRVL) but similarly valued. We will take a look at Okta, Inc. (NASDAQ:OKTA), Carrier Global Corporation (NYSE:CARR), Slack Technologies Inc (NYSE:WORK), and Chewy, Inc. (NYSE:CHWY). This group of stocks’ market values resemble MRVL’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OKTA,48,1086612,9 CARR,3,9338,3 WORK,31,465454,2 CHWY,36,493004,1 Average,29.5,513602,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $514 million. That figure was $498 million in MRVL’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand Carrier Global Corporation (NYSE:CARR) is the least popular one with only 3 bullish hedge fund positions. Marvell Technology Group Ltd. (NASDAQ:MRVL) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MRVL as the stock returned 55.4% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.