While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Interactive Brokers Group, Inc. (NASDAQ:IBKR).
Is Interactive Brokers Group, Inc. (NASDAQ:IBKR) the right investment to pursue these days? The smart money is becoming more confident. The number of long hedge fund positions increased by 1 recently. Our calculations also showed that IBKR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the recent hedge fund action encompassing Interactive Brokers Group, Inc. (NASDAQ:IBKR).
What does smart money think about Interactive Brokers Group, Inc. (NASDAQ:IBKR)?
Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in IBKR 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.
The largest stake in Interactive Brokers Group, Inc. (NASDAQ:IBKR) was held by Bares Capital Management, which reported holding $392.6 million worth of stock at the end of March. It was followed by Cantillon Capital Management with a $139.5 million position. Other investors bullish on the company included Select Equity Group, Ancient Art (Teton Capital), and Arlington Value Capital.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Park West Asset Management, managed by Peter S. Park, created the most valuable position in Interactive Brokers Group, Inc. (NASDAQ:IBKR). Park West Asset Management had $23.3 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Brandon Haley's Holocene Advisors, and Claes Fornell's CSat Investment Advisory.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Interactive Brokers Group, Inc. (NASDAQ:IBKR) but similarly valued. These stocks are Discovery, Inc. (NASDAQ:DISCA), PPL Corporation (NYSE:PPL), Stanley Black & Decker, Inc. (NYSE:SWK), and Hormel Foods Corporation (NYSE:HRL). All of these stocks' market caps are similar to IBKR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DISCA,24,335380,-2 PPL,20,857968,-2 SWK,27,1068040,-4 HRL,16,155140,1 Average,21.75,604132,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $604 million. That figure was $1003 million in IBKR's case. Stanley Black & Decker, Inc. (NYSE:SWK) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 16 bullish hedge fund positions. Interactive Brokers Group, Inc. (NASDAQ:IBKR) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IBKR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IBKR were disappointed as the stock returned -0.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.