"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Victory Capital Holdings, Inc. (NASDAQ:VCTR) and see how it was affected.
Victory Capital Holdings, Inc. (NASDAQ:VCTR) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that VCTR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the new hedge fund action encompassing Victory Capital Holdings, Inc. (NASDAQ:VCTR).
How are hedge funds trading Victory Capital Holdings, Inc. (NASDAQ:VCTR)?
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in VCTR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Victory Capital Holdings, Inc. (NASDAQ:VCTR), which was worth $24.4 million at the end of the second quarter. On the second spot was Azora Capital which amassed $22 million worth of shares. Moreover, Renaissance Technologies, BlueMar Capital Management, and Interval Partners were also bullish on Victory Capital Holdings, Inc. (NASDAQ:VCTR), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified VCTR as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks similar to Victory Capital Holdings, Inc. (NASDAQ:VCTR). We will take a look at National HealthCare Corporation (NYSE:NHC), Orion Engineered Carbons SA (NYSE:OEC), Sandy Spring Bancorp Inc. (NASDAQ:SASR), and Eidos Therapeutics, Inc. (NASDAQ:EIDX). This group of stocks' market values are closest to VCTR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NHC,9,58048,0 OEC,17,269481,-6 SASR,15,83501,1 EIDX,11,221663,3 Average,13,158173,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $68 million in VCTR's case. Orion Engineered Carbons SA (NYSE:OEC) is the most popular stock in this table. On the other hand National HealthCare Corporation (NYSE:NHC) is the least popular one with only 9 bullish hedge fund positions. Victory Capital Holdings, Inc. (NASDAQ:VCTR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VCTR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VCTR investors were disappointed as the stock returned -10.2% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.