Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Invesco Ltd. (NYSE:IVZ).
Invesco Ltd. (NYSE:IVZ) has seen a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that IVZ isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We're going to analyze the fresh hedge fund action surrounding Invesco Ltd. (NYSE:IVZ).
What have hedge funds been doing with Invesco Ltd. (NYSE:IVZ)?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in IVZ over the last 16 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Invesco Ltd. (NYSE:IVZ), which was worth $125.2 million at the end of the second quarter. On the second spot was Pzena Investment Management which amassed $54.3 million worth of shares. Moreover, Arrowstreet Capital, Millennium Management, and Citadel Investment Group were also bullish on Invesco Ltd. (NYSE:IVZ), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Invesco Ltd. (NYSE:IVZ) has witnessed a decline in interest from the smart money, we can see that there exists a select few hedgies that decided to sell off their full holdings last quarter. Interestingly, Renaissance Technologies dropped the biggest position of the 750 funds tracked by Insider Monkey, valued at an estimated $18.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $4.3 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Invesco Ltd. (NYSE:IVZ) but similarly valued. These stocks are Carvana Co. (NYSE:CVNA), Cabot Oil & Gas Corporation (NYSE:COG), Brown & Brown, Inc. (NYSE:BRO), and EPAM Systems Inc (NYSE:EPAM). This group of stocks' market caps are similar to IVZ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVNA,45,1801168,4 COG,37,932105,5 BRO,21,759675,4 EPAM,23,261441,2 Average,31.5,938597,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $939 million. That figure was $211 million in IVZ's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Brown & Brown, Inc. (NYSE:BRO) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Invesco Ltd. (NYSE:IVZ) is even less popular than BRO. Hedge funds dodged a bullet by taking a bearish stance towards IVZ. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IVZ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); IVZ investors were disappointed as the stock returned -15.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.