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Is INFY A Good Stock To Buy Now According To Hedge Funds?

Debasis Saha
·6 min read

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Infosys Limited (NYSE:INFY) makes for a good investment right now.

Is INFY a good stock to buy now? Infosys Limited (NYSE:INFY) has seen a decrease in hedge fund sentiment recently. Infosys Limited (NYSE:INFY) was in 22 hedge funds' portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that INFY 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners
Rajiv Jain of GQG Partners

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. With all of this in mind we're going to take a peek at the latest hedge fund action surrounding Infosys Limited (NYSE:INFY).

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

At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INFY over the last 21 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is INFY A Good Stock To Buy?
Is INFY A Good Stock To Buy?

According to Insider Monkey's hedge fund database, GQG Partners, managed by Rajiv Jain, holds the most valuable position in Infosys Limited (NYSE:INFY). GQG Partners has a $440.3 million position in the stock, comprising 1.5% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $375.6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism consist of Bernard Horn's Polaris Capital Management, Cliff Asness's AQR Capital Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Infosys Limited (NYSE:INFY), around 9.88% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 7.98 percent of its 13F equity portfolio to INFY.

Seeing as Infosys Limited (NYSE:INFY) has experienced bearish sentiment from hedge fund managers, it's safe to say that there exists a select few funds who sold off their positions entirely last quarter. It's worth mentioning that D. E. Shaw's D E Shaw said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, comprising about $11.2 million in stock. David Kowitz and Sheldon Kasowitz's fund, Indus Capital, also cut its stock, about $6.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Infosys Limited (NYSE:INFY). These stocks are Marsh & McLennan Companies, Inc. (NYSE:MMC), The Southern Company (NYSE:SO), Ecolab Inc. (NYSE:ECL), Intercontinental Exchange Inc (NYSE:ICE), Takeda Pharmaceutical Company Limited (NYSE:TAK), The Progressive Corporation (NYSE:PGR), and Humana Inc (NYSE:HUM). This group of stocks' market values match INFY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMC,35,841460,-3 SO,25,305510,-13 ECL,52,2270732,6 ICE,64,2904596,4 TAK,19,733854,1 PGR,47,1692254,-3 HUM,61,4804339,-12 Average,43.3,1936106,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.3 hedge funds with bullish positions and the average amount invested in these stocks was $1936 million. That figure was $1428 million in INFY's case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 19 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 overall hedge fund sentiment score for INFY is 31.8. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on INFY as the stock returned 14.6% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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