Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Infinera Corp. (NASDAQ:INFN) was in 16 hedge funds' portfolios at the end of the fourth quarter of 2018. INFN has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 25 hedge funds in our database with INFN holdings at the end of the previous quarter. Our calculations also showed that INFN isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
We're going to go over the new hedge fund action regarding Infinera Corp. (NASDAQ:INFN).
What have hedge funds been doing with Infinera Corp. (NASDAQ:INFN)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards INFN over the last 14 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Oaktree Capital Management was the largest shareholder of Infinera Corp. (NASDAQ:INFN), with a stake worth $83.7 million reported as of the end of December. Trailing Oaktree Capital Management was Fisher Asset Management, which amassed a stake valued at $23.8 million. Divisar Capital, D E Shaw, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Infinera Corp. (NASDAQ:INFN) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies who sold off their full holdings last quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management sold off the biggest position of the "upper crust" of funds monitored by Insider Monkey, worth about $15.2 million in stock. Jim Simons's fund, Renaissance Technologies, also dumped its stock, about $9.5 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 9 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Infinera Corp. (NASDAQ:INFN). We will take a look at Armada Hoffler Properties Inc (NYSE:AHH), ACCO Brands Corporation (NYSE:ACCO), Bryn Mawr Bank Corp. (NASDAQ:BMTC), and Tidewater Inc. (NYSE:TDW). This group of stocks' market values are similar to INFN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AHH,9,55295,1 ACCO,21,36332,0 BMTC,8,37812,-1 TDW,14,176770,3 Average,13,76552,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $143 million in INFN's case. ACCO Brands Corporation (NYSE:ACCO) is the most popular stock in this table. On the other hand Bryn Mawr Bank Corp. (NASDAQ:BMTC) is the least popular one with only 8 bullish hedge fund positions. Infinera Corp. (NASDAQ:INFN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on INFN, though not to the same extent, as the stock returned 18% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.