We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Onto Innovation Inc. (NYSE:ONTO).
Onto Innovation Inc. (NYSE:ONTO) has experienced an increase in activity from the world's largest hedge funds recently. Onto Innovation Inc. (NYSE:ONTO) was in 25 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ONTO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to take a peek at the key hedge fund action regarding Onto Innovation Inc. (NYSE:ONTO).
Do Hedge Funds Think ONTO Is A Good Stock To Buy Now?
At second quarter's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from the first quarter of 2020. By comparison, 17 hedge funds held shares or bullish call options in ONTO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Onto Innovation Inc. (NYSE:ONTO). Fisher Asset Management has a $85.5 million position in the stock, comprising 0.1% of its 13F portfolio. On Fisher Asset Management's heels is Roy Vermus and Shlomi Bracha of Noked Capital, with a $78.7 million position; 19.6% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Chuck Royce's Royce & Associates, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Noked Capital allocated the biggest weight to Onto Innovation Inc. (NYSE:ONTO), around 19.61% of its 13F portfolio. Glaxis Capital Management is also relatively very bullish on the stock, dishing out 5.57 percent of its 13F equity portfolio to ONTO.
Now, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in Onto Innovation Inc. (NYSE:ONTO). Citadel Investment Group had $1.4 million invested in the company at the end of the quarter. Cynthia Paul's Lynrock Lake also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Jinghua Yan's TwinBeech Capital, Joel Greenblatt's Gotham Asset Management, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Onto Innovation Inc. (NYSE:ONTO) but similarly valued. These stocks are SPS Commerce, Inc. (NASDAQ:SPSC), Assured Guaranty Ltd. (NYSE:AGO), White Mountains Insurance Group Ltd (NYSE:WTM), PotlatchDeltic Corporation (NASDAQ:PCH), PagerDuty, Inc. (NYSE:PD), Meritage Homes Corp (NYSE:MTH), and Diodes Incorporated (NASDAQ:DIOD). This group of stocks' market values resemble ONTO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPSC,20,152872,0 AGO,11,195023,-11 WTM,17,232444,-2 PCH,28,112587,2 PD,26,656534,2 MTH,20,323510,-3 DIOD,18,155512,-3 Average,20,261212,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $325 million in ONTO's case. PotlatchDeltic Corporation (NASDAQ:PCH) is the most popular stock in this table. On the other hand Assured Guaranty Ltd. (NYSE:AGO) is the least popular one with only 11 bullish hedge fund positions. Onto Innovation Inc. (NYSE:ONTO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ONTO is 81.2. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately ONTO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ONTO were disappointed as the stock returned 1.8% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.