World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
II-VI, Inc. (NASDAQ:IIVI) has experienced a decrease in hedge fund sentiment in recent months. IIVI was in 21 hedge funds' portfolios at the end of the second quarter of 2019. There were 22 hedge funds in our database with IIVI positions at the end of the previous quarter. Our calculations also showed that IIVI 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.
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 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. We're going to take a look at the key hedge fund action surrounding II-VI, Inc. (NASDAQ:IIVI).
What have hedge funds been doing with II-VI, Inc. (NASDAQ:IIVI)?
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in IIVI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the most valuable position in II-VI, Inc. (NASDAQ:IIVI), worth close to $19 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which holds a $13.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish comprise Chuck Royce's Royce & Associates, D. E. Shaw's D E Shaw and John Hurley's Cavalry Asset Management.
Seeing as II-VI, Inc. (NASDAQ:IIVI) has faced falling interest from hedge fund managers, logic holds that there lies a certain "tier" of fund managers that elected to cut their entire stakes in the second quarter. Interestingly, Mariko Gordon's Daruma Asset Management dropped the biggest position of the 750 funds followed by Insider Monkey, totaling close to $31.1 million in stock. Joe DiMenna's fund, ZWEIG DIMENNA PARTNERS, also cut its stock, about $6.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to II-VI, Inc. (NASDAQ:IIVI). These stocks are Allegiant Travel Company (NASDAQ:ALGT), Pattern Energy Group Inc (NASDAQ:PEGI), Qudian Inc. (NYSE:QD), and Appian Corporation (NASDAQ:APPN). This group of stocks' market caps resemble IIVI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGT,18,473360,-2 PEGI,12,35680,2 QD,22,170536,4 APPN,12,335900,-7 Average,16,253869,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $110 million in IIVI's case. Qudian Inc. (NYSE:QD) is the most popular stock in this table. On the other hand Pattern Energy Group Inc (NASDAQ:PEGI) is the least popular one with only 12 bullish hedge fund positions. II-VI, Inc. (NASDAQ:IIVI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately IIVI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IIVI were disappointed as the stock returned -3.7% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.