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) has experienced an increase in support from the world's most elite money managers lately. INFY was in 20 hedge funds' portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with INFY holdings at the end of the previous quarter. Our calculations also showed that infy isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the new hedge fund action encompassing Infosys Limited (NYSE:INFY).
How are hedge funds trading Infosys Limited (NYSE:INFY)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INFY over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ken Fisher's Fisher Asset Management has the biggest position in Infosys Limited (NYSE:INFY), worth close to $398.7 million, accounting for 0.5% of its total 13F portfolio. On Fisher Asset Management's heels is AQR Capital Management, managed by Cliff Asness, which holds a $218.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions comprise Bernard Horn's Polaris Capital Management, Donald Yacktman's Yacktman Asset Management and Noam Gottesman's GLG Partners.
Consequently, key money managers were leading the bulls' herd. Maverick Capital, managed by Lee Ainslie, established the most valuable position in Infosys Limited (NYSE:INFY). Maverick Capital had $5.7 million invested in the company at the end of the quarter. Gifford Combs's Dalton Investments also initiated a $3.2 million position during the quarter. The following funds were also among the new INFY investors: Ken Griffin's Citadel Investment Group, Jim Simons's Renaissance Technologies, and Matthew Tewksbury's Stevens Capital Management.
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 Marsh & McLennan Companies, Inc. (NYSE:MMC), FedEx Corporation (NYSE:FDX), Las Vegas Sands Corp. (NYSE:LVS), and ING Groep N.V. (NYSE:ING). This group of 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 MMC,29,806253,0 FDX,41,2267038,0 LVS,37,1709179,-7 ING,10,491851,3 Average,29.25,1318580,-1 [/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 $1319 million. That figure was $1071 million in INFY's case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 10 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. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately INFY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); INFY investors were disappointed as the stock returned -3.3% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.