Qualcomm Inc [QCOM] is selling off quite a bit after disappointing earnings today – the stock is off over 14% as of market close. This stock is a hedge fund favorite or a “crowded hedge fund trade” which is what the most popular hedge fund holdings are often called. There’s been much written about how these stocks tend to underperform and our research seems to support the same conclusion. Our Hedge Fund Index Top 10 Popularity clone which invests quarterly in the 10 stocks that are the most widely held amongst hedge funds’ twenty largest positions returns an anemic negative 0.6% annualized since 2000 versus a negative 1% annualized for the S&P500TR index – not very exciting.
So I guess that means you should stay away from QCOM or beat a hasty retreat if you’re currently “involved” with the stock. Not so fast, QCOM also happens to be a current holding in AlphaClone’s:
Both the above clones are stellar performers returning 8.8% and 12.9% annualized since 2000 respectively (as of 1/27/2010)! So is this a buy now or sell now opportunity? The data above suggests that “crowded hedge fund trades” as a basket should be avoided, but not all crowded trades are bad – it all depends on the crowd! Stay tuned – we update all clones on the evening of 2/19.