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Is II-VI, Inc. (IIVI) Going to Burn These Hedge Funds?

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 II-VI, Inc. (NASDAQ:IIVI).

Is II-VI, Inc. (NASDAQ:IIVI) going to take off soon? Money managers were becoming less hopeful. The number of long hedge fund bets retreated by 10 in recent months. II-VI, Inc. (NASDAQ:IIVI) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistic is 39. Our calculations also showed that IIVI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 39 hedge funds in our database with IIVI positions at the end of the first quarter.

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

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 take a look at the key hedge fund action regarding II-VI, Inc. (NASDAQ:IIVI).

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

At second quarter's end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IIVI over the last 24 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Atreides Management held the most valuable stake in II-VI, Inc. (NASDAQ:IIVI), which was worth $111.9 million at the end of the second quarter. On the second spot was Select Equity Group which amassed $43.4 million worth of shares. Citadel Investment Group, Chilton Investment Company, and Citadel Investment Group 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 SAYA Management allocated the biggest weight to II-VI, Inc. (NASDAQ:IIVI), around 6.32% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, dishing out 5.98 percent of its 13F equity portfolio to IIVI.

Judging by the fact that II-VI, Inc. (NASDAQ:IIVI) has experienced bearish sentiment from the smart money, it's safe to say that there was a specific group of hedgies that slashed their positions entirely last quarter. Intriguingly, Xiuping Li's Opti Capital Management said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $38 million in stock, and Michael Rockefeller and KarláKroeker's Woodline Partners was right behind this move, as the fund dropped about $9.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 10 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as II-VI, Inc. (NASDAQ:IIVI) but similarly valued. We will take a look at Crocs, Inc. (NASDAQ:CROX), Old Republic International Corporation (NYSE:ORI), Shift4 Payments, Inc. (NYSE:FOUR), Kingsoft Cloud Holdings Limited (NASDAQ:KC), Chemed Corporation (NYSE:CHE), Ternium S.A. (NYSE:TX), and Hill-Rom Holdings, Inc. (NYSE:HRC). This group of stocks' market valuations match IIVI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CROX,40,931239,9 ORI,26,366916,2 FOUR,31,615370,-2 KC,12,67297,-4 CHE,30,313539,6 TX,15,213272,1 HRC,22,387344,-8 Average,25.1,413568,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $274 million in IIVI's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Kingsoft Cloud Holdings Limited (NASDAQ:KC) is the least popular one with only 12 bullish hedge fund positions. II-VI, Inc. (NASDAQ:IIVI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IIVI is 47.7. 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. 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 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately IIVI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on IIVI were disappointed as the stock returned -20.7% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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