At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Houlihan Lokey Inc (NYSE:HLI).
Houlihan Lokey Inc (NYSE:HLI) investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. Our calculations also showed that HLI 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In the eyes of most market participants, hedge funds are viewed as unimportant, outdated financial vehicles of the past. While there are over 8000 funds with their doors open today, Our researchers look at the bigwigs of this club, about 850 funds. These hedge fund managers command the majority of all hedge funds' total capital, and by tracking their highest performing investments, Insider Monkey has formulated various investment strategies that have historically outstripped the S&P 500 index. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_731890" align="aligncenter" width="400"] John Rogers of Ariel Investments[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 let's take a gander at the fresh hedge fund action encompassing Houlihan Lokey Inc (NYSE:HLI).
What have hedge funds been doing with Houlihan Lokey Inc (NYSE:HLI)?
Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in HLI a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce's Royce & Associates has the number one position in Houlihan Lokey Inc (NYSE:HLI), worth close to $42.7 million, corresponding to 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is John W. Rogers of Ariel Investments, with a $38.8 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Ken Griffin's Citadel Investment Group, Noam Gottesman's GLG Partners and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Houlihan Lokey Inc (NYSE:HLI), around 0.68% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.58 percent of its 13F equity portfolio to HLI.
Now, key money managers were leading the bulls' herd. Millennium Management, managed by Israel Englander, established the most valuable position in Houlihan Lokey Inc (NYSE:HLI). Millennium Management had $4.3 million invested in the company at the end of the quarter. David Paradice's Paradice Investment Management also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new HLI investors: Renaissance Technologies, Greg Eisner's Engineers Gate Manager, and Frederick DiSanto's Ancora Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Houlihan Lokey Inc (NYSE:HLI) but similarly valued. These stocks are Choice Hotels International, Inc. (NYSE:CHH), Tata Motors Limited (NYSE:TTM), Aluminum Corp. of China Limited (NYSE:ACH), and Acuity Brands, Inc. (NYSE:AYI). All of these stocks' market caps are similar to HLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHH,16,101950,0 TTM,10,60931,-1 ACH,2,2417,-1 AYI,31,498648,2 Average,14.75,165987,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $134 million in HLI's case. Acuity Brands, Inc. (NYSE:AYI) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 2 bullish hedge fund positions. Houlihan Lokey Inc (NYSE:HLI) 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately HLI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HLI were disappointed as the stock returned 7.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.