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Hedge Funds Are Souring On Infosys Limited (INFY)

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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 Infosys Limited (NYSE:INFY).

Infosys Limited (NYSE:INFY) shareholders have witnessed a decrease in hedge fund sentiment recently. Infosys Limited (NYSE:INFY) was in 22 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 27. There were 26 hedge funds in our database with INFY holdings at the end of March. Our calculations also showed that INFY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Horn of Polaris Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's go over the latest hedge fund action surrounding Infosys Limited (NYSE:INFY).

Do Hedge Funds Think INFY Is A Good Stock To Buy Now?

At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in INFY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Rajiv Jain's GQG Partners has the number one position in Infosys Limited (NYSE:INFY), worth close to $1.2065 billion, amounting to 3.5% of its total 13F portfolio. Sitting at the No. 2 spot is Fisher Asset Management, led by Ken Fisher, holding a $362.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Cliff Asness's AQR Capital Management, Bernard Horn's Polaris Capital Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Infosys Limited (NYSE:INFY), around 11.51% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 5.42 percent of its 13F equity portfolio to INFY.

Seeing as Infosys Limited (NYSE:INFY) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers who sold off their entire stakes heading into Q3. It's worth mentioning that Richard Oldfield's Oldfield Partners dropped the largest position of the 750 funds monitored by Insider Monkey, comprising about $48.7 million in stock. Ben Levine, Andrew Manuel and Stefan Renold's fund, LMR Partners, also dumped its stock, about $15.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Infosys Limited (NYSE:INFY). We will take a look at Booking Holdings Inc. (NASDAQ:BKNG), PetroChina Company Limited (NYSE:PTR), BP plc (NYSE:BP), Zoetis Inc (NYSE:ZTS), Prologis Inc (NYSE:PLD), Altria Group Inc (NYSE:MO), and Fidelity National Information Services Inc. (NYSE:FIS). This group of stocks' market caps resemble INFY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKNG,100,6943746,-3 PTR,8,85856,0 BP,30,1080625,1 ZTS,58,2705785,0 PLD,40,563748,1 MO,47,948996,9 FIS,72,7369909,-2 Average,50.7,2814095,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $2814 million. That figure was $2159 million in INFY's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 8 bullish hedge fund positions. Infosys Limited (NYSE:INFY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INFY is 33.1. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on INFY as the stock returned 8.6% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.