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 Avaya Holdings Corp. (NYSE:AVYA) and determine whether hedge funds skillfully traded this stock.
Avaya Holdings Corp. (NYSE:AVYA) has seen an increase in hedge fund interest in recent months. Avaya Holdings Corp. (NYSE:AVYA) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. There were 27 hedge funds in our database with AVYA holdings at the end of March. Our calculations also showed that AVYA isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
If you'd ask most investors, hedge funds are assumed to be unimportant, outdated financial tools of yesteryear. While there are more than 8000 funds in operation today, Our researchers look at the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors oversee the lion's share of the smart money's total capital, and by watching their highest performing picks, Insider Monkey has formulated a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
James Dondero of Highland Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a glance at the new hedge fund action regarding Avaya Holdings Corp. (NYSE:AVYA).
How have hedgies been trading Avaya Holdings Corp. (NYSE:AVYA)?
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in AVYA a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Melqart Asset Management was the largest shareholder of Avaya Holdings Corp. (NYSE:AVYA), with a stake worth $42.3 million reported as of the end of September. Trailing Melqart Asset Management was Point72 Asset Management, which amassed a stake valued at $30.8 million. Highland Capital Management, Arrowstreet Capital, and Armistice Capital 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 Alta Fundamental Advisers allocated the biggest weight to Avaya Holdings Corp. (NYSE:AVYA), around 20.55% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, earmarking 6.06 percent of its 13F equity portfolio to AVYA.
Now, key money managers have jumped into Avaya Holdings Corp. (NYSE:AVYA) headfirst. Rubric Capital Management, managed by David Rosen, created the biggest position in Avaya Holdings Corp. (NYSE:AVYA). Rubric Capital Management had $17.3 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital also made a $7.1 million investment in the stock during the quarter. The other funds with brand new AVYA positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Greg Eisner's Engineers Gate Manager, and Paul Hondros's AlphaOne Capital Partners.
Let's now review hedge fund activity in other stocks similar to Avaya Holdings Corp. (NYSE:AVYA). We will take a look at Arbor Realty Trust, Inc. (NYSE:ABR), Waddell & Reed Financial, Inc. (NYSE:WDR), Kontoor Brands, Inc. (NYSE:KTB), Huron Consulting Group Inc. (NASDAQ:HURN), EnPro Industries, Inc. (NYSE:NPO), CSW Industrials, Inc. (NASDAQ:CSWI), and First Busey Corporation (NASDAQ:BUSE). All of these stocks' market caps are closest to AVYA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABR,6,32144,-8 WDR,25,118264,3 KTB,18,64195,2 HURN,11,36397,-6 NPO,17,131944,3 CSWI,19,29123,3 BUSE,13,36069,2 Average,15.6,64019,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.6 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $263 million in AVYA's case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand Arbor Realty Trust, Inc. (NYSE:ABR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Avaya Holdings Corp. (NYSE:AVYA) is more popular among hedge funds. Our overall hedge fund sentiment score for AVYA is 84.3. 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. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on AVYA as the stock returned 25.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.