It’s widely known that the semiconductor industry acts as a driver and indicator of the technological progress. The development in the following industry determines the way people work, commute, communicate and entertain, among other things; a lot of things that surround us use semiconductor devices. However, the outlooks for a range of applications that drive the semiconductor market, such as PCs, smartphones and tablets, have seen downward revisions this year. A strong U.S. dollar has also put pressure on the industry, so hedge funds have started to pull their money out of semiconductor stocks. In this article, we’ll discuss some semiconductor stocks that have witnessed an increase of hedge fund activity lately, including: Micron Technology Inc. (NASDAQ:MU), Applied Materials Inc. (NASDAQ:AMAT), Intel Corporation (NASDAQ:INTC), Cypress Semiconductor Corporation (NASDAQ:CY).
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 ETF (SPY) by 66 percentage points (see more details here).
Micron Technology Inc. (NASDAQ:MU) is the most popular semiconductor stock, in which 79 funds held long positions at the end of June, down by 21 from the previous quarter. By the same token, the value of their total investments in Micron decreased to $3.73 billion from $6.96 billion during the quarter. The stock of the semiconductor devices provider has dropped by almost 52% year-to-date, as the company faced significant challenges with its 20nm DRAM. Micron has been attempting to gain more market share from Samsung for its 20nm DRAM by setting lower prices, but Samsung started the mass-production of DRAM using the 20nm fabrication process well ahead of Micron, so the latter has had a hard time competing. David Einhorn’s Greenlight Capital is a shareholder of Micron Technology Inc. (NASDAQ:MU), holding 37.95 million shares with a market value of $640.98 million.
