It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Amdocs Limited (NYSE:DOX) during the quarter below.
Amdocs Limited (NYSE:DOX) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds' portfolios at the end of September. 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 Bio-Rad Laboratories, Inc. (NYSE:BIO), Everest Re Group Ltd (NYSE:RE), and Federal Realty Investment Trust (NYSE:FRT) to gather more data points.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's view the recent hedge fund action surrounding Amdocs Limited (NYSE:DOX).
How are hedge funds trading Amdocs Limited (NYSE:DOX)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from the second quarter of 2018. On the other hand, there were a total of 27 hedge funds with a bullish position in DOX at the beginning of this year. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Amdocs Limited (NYSE:DOX), with a stake worth $243.2 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $94.6 million. International Value Advisers, Arrowstreet Capital, and Ariel Investments were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Amdocs Limited (NYSE:DOX) has experienced falling interest from hedge fund managers, we can see that there were a few hedge funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Brian Ashford-Russell and Tim Woolley's Polar Capital dropped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $46.6 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $6.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Amdocs Limited (NASDAQ:DOX). These stocks are Bio-Rad Laboratories, Inc. (NYSE:BIO), Everest Re Group Ltd (NYSE:RE), Federal Realty Investment Trust (NYSE:FRT), and Parsley Energy Inc (NYSE:PE). This group of stocks' market caps are similar to DOX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BIO,38,811052,2 RE,14,486625,-6 FRT,21,252350,1 PE,44,1568881,5 Average,29.25,779727,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $780 million. That figure was $643 million in DOX's case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Everest Re Group Ltd (NYSE:RE) is the least popular one with only 14 bullish hedge fund positions. Amdocs Limited (NYSE:DOX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard PE might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.