How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding i3 Verticals, Inc. (NASDAQ:IIIV) and determine whether hedge funds had an edge regarding this stock.
Is i3 Verticals, Inc. (NASDAQ:IIIV) ready to rally soon? Investors who are in the know were in a pessimistic mood. The number of long hedge fund bets retreated by 1 recently. Our calculations also showed that IIIV 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a peek at the latest hedge fund action encompassing i3 Verticals, Inc. (NASDAQ:IIIV).
What does smart money think about i3 Verticals, Inc. (NASDAQ:IIIV)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IIIV over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in i3 Verticals, Inc. (NASDAQ:IIIV), which was worth $15.3 million at the end of the third quarter. On the second spot was Harbert Management which amassed $13.4 million worth of shares. Crosslink Capital, Millennium Management, and Renaissance Technologies 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 Harbert Management allocated the biggest weight to i3 Verticals, Inc. (NASDAQ:IIIV), around 22.33% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, earmarking 1.43 percent of its 13F equity portfolio to IIIV.
Judging by the fact that i3 Verticals, Inc. (NASDAQ:IIIV) has faced bearish sentiment from the smart money, it's easy to see that there exists a select few hedgies that elected to cut their positions entirely by the end of the first quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $0.6 million in stock, and Frank Slattery's Symmetry Peak Management was right behind this move, as the fund cut about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to i3 Verticals, Inc. (NASDAQ:IIIV). We will take a look at Rattler Midstream LP (NASDAQ:RTLR), TrustCo Bank Corp NY (NASDAQ:TRST), Relmada Therapeutics, Inc. (NASDAQ:RLMD), and Tredegar Corporation (NYSE:TG). This group of stocks' market values are similar to IIIV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RTLR,9,43773,1 TRST,11,30498,-3 RLMD,9,149193,1 TG,10,60803,1 Average,9.75,71067,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $42 million in IIIV's case. TrustCo Bank Corp NY (NASDAQ:TRST) is the most popular stock in this table. On the other hand Rattler Midstream LP (NASDAQ:RTLR) is the least popular one with only 9 bullish hedge fund positions. i3 Verticals, Inc. (NASDAQ:IIIV) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on IIIV as the stock returned 58.5% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.