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Hedge Funds Are Warming Up To Infosys Limited (INFY)

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Infosys Limited (NYSE:INFY).

Infosys Limited (NYSE:INFY) investors should pay attention to an increase in hedge fund sentiment of late. Infosys Limited (NYSE:INFY) was in 29 hedge funds' portfolios at the end of September. The all time high for this statistic was previously 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 22 hedge funds in our database with INFY holdings at the end of June. Our calculations also showed that INFY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let's take a look at the latest hedge fund action regarding Infosys Limited (NYSE:INFY).

Rajiv Jain of GQG Partners
Rajiv Jain of GQG Partners

Rajiv Jain of GQG Partners

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

At the end of September, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the second quarter of 2021. On the other hand, there were a total of 22 hedge funds with a bullish position in INFY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GQG Partners held the most valuable stake in Infosys Limited (NYSE:INFY), which was worth $1285.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $357.1 million worth of shares. AQR Capital Management, Polaris Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Infosys Limited (NYSE:INFY), around 18.33% of its 13F portfolio. Oldfield Partners is also relatively very bullish on the stock, dishing out 5.78 percent of its 13F equity portfolio to INFY.

Consequently, key money managers were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, created the most valuable position in Infosys Limited (NYSE:INFY). LMR Partners had $15.6 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also made a $11.8 million investment in the stock during the quarter. The following funds were also among the new INFY investors: Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Mikal Patel's Oribel Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Infosys Limited (NYSE:INFY) but similarly valued. We will take a look at Prologis Inc (NYSE:PLD), Zoetis Inc (NYSE:ZTS), BP plc (NYSE:BP), Snowflake Inc (NYSE:SNOW), Anthem Inc (NYSE:ANTM), ConocoPhillips (NYSE:COP), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks' market values are closest to INFY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLD,32,483464,-8 ZTS,58,2713394,0 BP,29,1053236,-1 SNOW,73,14569929,3 ANTM,59,4585560,-8 COP,49,1371142,-1 ADI,74,5698767,12 Average,53.4,4353642,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.4 hedge funds with bullish positions and the average amount invested in these stocks was $4354 million. That figure was $2474 million in INFY's case. Analog Devices, Inc. (NASDAQ:ADI) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Infosys Limited (NYSE:INFY) is even less popular than BP. Our overall hedge fund sentiment score for INFY is 40. 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. Hedge funds dodged a bullet by taking a bearish stance towards INFY. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th but managed to beat the market again by 5.6 percentage points. Unfortunately INFY wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); INFY investors were disappointed as the stock returned 2.4% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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