Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Virtu Financial Inc (NASDAQ:VIRT) to find out whether it was one of their high conviction long-term ideas.
Virtu Financial Inc (NASDAQ:VIRT) was in 17 hedge funds' portfolios at the end of the fourth quarter of 2018. VIRT has experienced an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with VIRT positions at the end of the previous quarter. Our calculations also showed that VIRT isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
We're going to check out the fresh hedge fund action surrounding Virtu Financial Inc (NASDAQ:VIRT).
How are hedge funds trading Virtu Financial Inc (NASDAQ:VIRT)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in VIRT 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, Royce & Associates held the most valuable stake in Virtu Financial Inc (NASDAQ:VIRT), which was worth $39.7 million at the end of the third quarter. On the second spot was Strycker View Capital which amassed $16.5 million worth of shares. Moreover, Renaissance Technologies, Balyasny Asset Management, and D E Shaw were also bullish on Virtu Financial Inc (NASDAQ:VIRT), allocating a large percentage of their portfolios to this stock.
Consequently, some big names were breaking ground themselves. Strycker View Capital, managed by Usman Waheed, established the largest position in Virtu Financial Inc (NASDAQ:VIRT). Strycker View Capital had $16.5 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $9.7 million investment in the stock during the quarter. The following funds were also among the new VIRT investors: Peter Seuss's Prana Capital Management, Israel Englander's Millennium Management, and Richard Driehaus's Driehaus Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Virtu Financial Inc (NASDAQ:VIRT) but similarly valued. We will take a look at Elbit Systems Ltd. (NASDAQ:ESLT), Lancaster Colony Corporation (NASDAQ:LANC), Algonquin Power & Utilities Corp. (NYSE:AQN), and New Residential Investment Corp (NYSE:NRZ). This group of stocks' market values match VIRT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESLT,3,11299,1 LANC,12,257834,-4 AQN,9,24529,3 NRZ,25,144361,9 Average,12.25,109506,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $115 million in VIRT's case. New Residential Investment Corp (NYSE:NRZ) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Virtu Financial Inc (NASDAQ:VIRT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately VIRT wasn't nearly as popular as these 15 stock and hedge funds that were betting on VIRT were disappointed as the stock returned -0.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.