We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Infinera Corp. (NASDAQ:INFN).
Is INFN a good stock to buy now? Infinera Corp. (NASDAQ:INFN) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. INFN has seen a decrease in support from the world's most elite money managers lately. There were 21 hedge funds in our database with INFN positions at the end of the second quarter. Our calculations also showed that INFN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 66 percentage points since March 2017 (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.
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now let's take a look at the new hedge fund action encompassing Infinera Corp. (NASDAQ:INFN).
Do Hedge Funds Think INFN Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in INFN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Infinera Corp. (NASDAQ:INFN) was held by Oaktree Capital Management, which reported holding $155.1 million worth of stock at the end of September. It was followed by Greenhouse Funds with a $33.6 million position. Other investors bullish on the company included Divisar Capital, Park West Asset Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Infinera Corp. (NASDAQ:INFN), around 5.25% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, dishing out 5.11 percent of its 13F equity portfolio to INFN.
Seeing as Infinera Corp. (NASDAQ:INFN) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers that slashed their positions entirely by the end of the third quarter. It's worth mentioning that Joe DiMenna's ZWEIG DIMENNA PARTNERS dumped the largest stake of the 750 funds tracked by Insider Monkey, totaling about $2.8 million in stock, and Michael Platt and William Reeves's BlueCrest Capital Mgmt. was right behind this move, as the fund dumped about $2.6 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Infinera Corp. (NASDAQ:INFN). We will take a look at Annexon, Inc. (NASDAQ:ANNX), EnLink Midstream LLC (NYSE:ENLC), Opera Limited (NASDAQ:OPRA), New Gold Inc. (NYSE:NGD), SilverCrest Metals Inc. (NYSE:SILV), Atrion Corporation (NASDAQ:ATRI), and Mack Cali Realty Corp (NYSE:CLI). 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 ANNX,11,323562,11 ENLC,9,12533,2 OPRA,4,1682,-1 NGD,12,99810,1 SILV,12,189586,3 ATRI,10,57819,-2 CLI,11,39973,-2 Average,9.9,103566,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $261 million in INFN's case. New Gold Inc. (NYSE:NGD) is the most popular stock in this table. On the other hand Opera Limited (NASDAQ:OPRA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Infinera Corp. (NASDAQ:INFN) is more popular among hedge funds. Our overall hedge fund sentiment score for INFN is 73.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on INFN as the stock returned 58.8% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.