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 second 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 5 years and analyze what the smart money thinks of Virtu Financial Inc (NASDAQ:VIRT) based on that data and determine whether they were really smart about the stock.
Is Virtu Financial Inc (NASDAQ:VIRT) ready to rally soon? Prominent investors were in a bullish mood. The number of long hedge fund bets rose by 11 in recent months. Virtu Financial Inc (NASDAQ:VIRT) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that VIRT isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's take a look at the new hedge fund action surrounding Virtu Financial Inc (NASDAQ:VIRT).
How are hedge funds trading Virtu Financial Inc (NASDAQ:VIRT)?
Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 65% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in VIRT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Virtu Financial Inc (NASDAQ:VIRT) was held by Renaissance Technologies, which reported holding $98.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $27.1 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Virtu Financial Inc (NASDAQ:VIRT), around 1.33% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to VIRT.
Now, specific money managers were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Virtu Financial Inc (NASDAQ:VIRT). Point72 Asset Management had $18.3 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $6.3 million investment in the stock during the quarter. The following funds were also among the new VIRT investors: Anand Parekh's Alyeska Investment Group, Paul Tudor Jones's Tudor Investment Corp, and Dmitry Balyasny's Balyasny Asset Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Virtu Financial Inc (NASDAQ:VIRT) but similarly valued. We will take a look at CoreSite Realty Corp (NYSE:COR), 1Life Healthcare, Inc. (NASDAQ:ONEM), Q2 Holdings Inc (NYSE:QTWO), Science Applications International Corp (NYSE:SAIC), Haemonetics Corporation (NYSE:HAE), MyoKardia, Inc. (NASDAQ:MYOK), and TCF Financial Corporation (NASDAQ:TCF). All of these stocks' market caps are similar to VIRT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COR,21,265464,-2 ONEM,20,345146,10 QTWO,26,290188,8 SAIC,35,448930,1 HAE,39,533278,5 MYOK,45,1360886,12 TCF,14,85082,-5 Average,28.6,475568,4.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $476 million. That figure was $213 million in VIRT's case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand TCF Financial Corporation (NASDAQ:TCF) is the least popular one with only 14 bullish hedge fund positions. Virtu Financial Inc (NASDAQ:VIRT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VIRT is 62.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately VIRT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VIRT investors were disappointed as the stock returned -2.1% since Q2 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 in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.