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Did Hedge Funds Drop The Ball On Infinera Corporation (INFN)?

Nina Todic

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by 4 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Infinera Corporation (NASDAQ:INFN).

Infinera Corporation (NASDAQ:INFN) investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that INFN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the latest hedge fund action regarding Infinera Corporation (NASDAQ:INFN).

What does smart money think about Infinera Corporation (NASDAQ:INFN)?

Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -42% from the first quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in INFN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with INFN Positions

The largest stake in Infinera Corporation (NASDAQ:INFN) was held by Oaktree Capital Management, which reported holding $61 million worth of stock at the end of March. It was followed by Divisar Capital with a $9.6 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Royce & Associates.

Since Infinera Corporation (NASDAQ:INFN) has witnessed a decline in interest from the smart money, logic holds that there were a few funds who sold off their entire stakes in the second quarter. Intriguingly, Ken Fisher's Fisher Asset Management cut the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $23.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also sold off its stock, about $3.6 million worth. These transactions are interesting, as total hedge fund interest fell by 8 funds in the second quarter.

Let's go over hedge fund activity in other stocks similar to Infinera Corporation (NASDAQ:INFN). These stocks are Zix Corporation (NASDAQ:ZIXI), Cheetah Mobile Inc (NYSE:CMCM), Ennis, Inc. (NYSE:EBF), and The First of Long Island Corporation (NASDAQ:FLIC). All of these stocks' market caps match INFN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZIXI,14,74900,-7 CMCM,6,5545,2 EBF,12,68995,3 FLIC,9,36507,0 Average,10.25,46487,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $89 million in INFN's case. Zix Corporation (NASDAQ:ZIXI) is the most popular stock in this table. On the other hand Cheetah Mobile Inc (NYSE:CMCM) is the least popular one with only 6 bullish hedge fund positions. Infinera Corporation (NASDAQ:INFN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on INFN as the stock returned 87.3% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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