Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Infosys Limited (NYSE:INFY).
Infosys Limited (NYSE:INFY) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that INFY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 41 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26335" align="aligncenter" width="400"] Ken Fisher of Fisher Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we're going to view the key hedge fund action regarding Infosys Limited (NYSE:INFY).
Hedge fund activity in Infosys Limited (NYSE:INFY)
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in INFY a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Infosys Limited (NYSE:INFY), which was worth $344.8 million at the end of the third quarter. On the second spot was GQG Partners which amassed $328.3 million worth of shares. AQR Capital Management, Polaris Capital Management, and LMR Partners 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 Polaris Capital Management allocated the biggest weight to Infosys Limited (NYSE:INFY), around 8.48% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, earmarking 6.76 percent of its 13F equity portfolio to INFY.
Seeing as Infosys Limited (NYSE:INFY) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there were a few hedgies that decided to sell off their entire stakes last quarter. It's worth mentioning that Howard Marks's Oaktree Capital Management dropped the largest stake of all the hedgies watched by Insider Monkey, worth about $40.8 million in stock. Renaissance Technologies, also dumped its stock, about $30 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Infosys Limited (NYSE:INFY). We will take a look at L3Harris Technologies, Inc. (NASDAQ:LHX), SYSCO Corporation (NYSE:SYY), National Grid plc (NYSE:NGG), and Sempra Energy (NYSE:SRE). All of these stocks' market caps resemble INFY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LHX,48,2542147,-3 SYY,28,3021435,3 NGG,6,439511,-4 SRE,35,717221,4 Average,29.25,1680079,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1680 million. That figure was $1465 million in INFY's case. L3Harris Technologies, Inc. (NASDAQ:LHX) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. Infosys Limited (NYSE:INFY) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on INFY, though not to the same extent, as the stock returned -13.8% during the same time period and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.