Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Virtu Financial Inc (NASDAQ:VIRT) based on that data.
Is Virtu Financial Inc (NASDAQ:VIRT) a safe investment right now? Prominent investors are in a bullish mood. The number of bullish hedge fund positions inched up by 2 lately. Our calculations also showed that VIRT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). VIRT was in 17 hedge funds' portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with VIRT holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's check out the recent hedge fund action regarding Virtu Financial Inc (NASDAQ:VIRT).
How have hedgies been trading Virtu Financial Inc (NASDAQ:VIRT)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VIRT over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Virtu Financial Inc (NASDAQ:VIRT). Royce & Associates has a $26 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $15.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass David Harding's Winton Capital Management, James Morrow's Callodine Capital Management and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Virtu Financial Inc (NASDAQ:VIRT), around 2.12% of its 13F portfolio. Cobalt Capital Management is also relatively very bullish on the stock, setting aside 1.43 percent of its 13F equity portfolio to VIRT.
Consequently, key money managers were breaking ground themselves. Renaissance Technologies, initiated the most outsized position in Virtu Financial Inc (NASDAQ:VIRT). Renaissance Technologies had $15.6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $4.1 million position during the quarter. The other funds with brand new VIRT positions are Wayne Cooperman's Cobalt Capital Management, Richard Driehaus's Driehaus Capital, and Greg Eisner's Engineers Gate Manager.
Let's also examine hedge fund activity in other stocks similar to Virtu Financial Inc (NASDAQ:VIRT). We will take a look at Herbalife Nutrition Ltd. (NYSE:HLF), IAA, Inc. (NYSE:IAA), Enphase Energy Inc (NASDAQ:ENPH), and CDK Global Inc (NASDAQ:CDK). This group of stocks' market values resemble VIRT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLF,31,2056361,-1 IAA,39,804594,2 ENPH,35,370199,-4 CDK,24,180742,-1 Average,32.25,852974,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $853 million. That figure was $73 million in VIRT's case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand CDK Global Inc (NASDAQ:CDK) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Virtu Financial Inc (NASDAQ:VIRT) is even less popular than CDK. Hedge funds dodged a bullet by taking a bearish stance towards VIRT. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. Unfortunately VIRT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); VIRT investors were disappointed as the stock returned 14.5% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.