Did Hedge Funds Make The Right Call On II-VI, Inc. (IIVI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded II-VI, Inc. (NASDAQ:IIVI) and determine whether the smart money was really smart about this stock.

II-VI, Inc. (NASDAQ:IIVI) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. IIVI investors should be aware of an increase in hedge fund interest recently. There were 18 hedge funds in our database with IIVI holdings at the end of the previous quarter. Our calculations also showed that IIVI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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.

Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset ManagementHarold Levy

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s check out the latest hedge fund action surrounding II-VI, Inc. (NASDAQ:IIVI).

What does smart money think about II-VI, Inc. (NASDAQ:IIVI)?

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 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IIVI over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Iridian Asset Management, managed by David Cohen and Harold Levy, holds the most valuable position in II-VI, Inc. (NASDAQ:IIVI). Iridian Asset Management has a $24.5 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $15.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Chuck Royce’s Royce & Associates, Steven Baughman’s Divisar Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to II-VI, Inc. (NASDAQ:IIVI), around 5.56% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, setting aside 2.07 percent of its 13F equity portfolio to IIVI.

Now, key money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the biggest position in II-VI, Inc. (NASDAQ:IIVI). Adage Capital Management had $15.7 million invested in the company at the end of the quarter. Will Graves’s Boardman Bay Capital Management also initiated a $2.2 million position during the quarter. The following funds were also among the new IIVI investors: Greg Eisner’s Engineers Gate Manager, Minhua Zhang’s Weld Capital Management, and Brandon Haley’s Holocene Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as II-VI, Inc. (NASDAQ:IIVI) but similarly valued. These stocks are Cushman & Wakefield plc (NYSE:CWK), Coherent, Inc. (NASDAQ:COHR), Viavi Solutions Inc (NASDAQ:VIAV), and CRISPR Therapeutics AG (NASDAQ:CRSP). This group of stocks’ market caps are similar to IIVI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CWK 15 89918 -3
COHR 23 172545 -5
VIAV 31 305459 -6
CRSP 31 197848 1
Average 25 191443 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $100 million in IIVI’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 15 bullish hedge fund positions. II-VI, Inc. (NASDAQ:IIVI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on IIVI as the stock returned 65.8% since the end of March and outperformed the market by an even larger margin.

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