Did Hedge Funds Make The Right Call On Infosys Limited (INFY) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Infosys Limited (NYSE:INFY) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Infosys Limited (NYSE:INFY) was in 27 hedge funds’ portfolios at the end of March. INFY has seen an increase in hedge fund interest in recent months. There were 25 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 (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.

To most traders, hedge funds are assumed to be unimportant, old investment tools of yesteryear. While there are over 8000 funds in operation today, Our researchers choose to focus on the masters of this club, approximately 850 funds. It is estimated that this group of investors shepherd most of the hedge fund industry’s total capital, and by observing their top stock picks, Insider Monkey has discovered various investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing Infosys Limited (NYSE:INFY).

How have hedgies been trading Infosys Limited (NYSE:INFY)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards INFY over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Infosys Limited (NYSE:INFY) was held by GQG Partners, which reported holding $316.7 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $259 million position. Other investors bullish on the company included AQR Capital Management, Polaris Capital Management, and LMR Partners. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Infosys Limited (NYSE:INFY), around 5.92% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 5.27 percent of its 13F equity portfolio to INFY.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Renaissance Technologies, created the biggest position in Infosys Limited (NYSE:INFY). Renaissance Technologies had $23.9 million invested in the company at the end of the quarter. David Kowitz and Sheldon Kasowitz’s Indus Capital also made a $5.7 million investment in the stock during the quarter. The other funds with brand new INFY positions are Matthew Hulsizer’s PEAK6 Capital Management, Bruce Kovner’s Caxton Associates LP, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Infosys Limited (NYSE:INFY) but similarly valued. We will take a look at Public Storage (NYSE:PSA), Autodesk, Inc. (NASDAQ:ADSK), Keurig Dr Pepper Inc. (NYSE:KDP), and Atlassian Corporation Plc (NASDAQ:TEAM). All of these stocks’ market caps are closest to INFY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSA 27 807200 0
ADSK 65 2597838 1
KDP 30 564764 4
TEAM 59 2586287 -3
Average 45.25 1639022 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.25 hedge funds with bullish positions and the average amount invested in these stocks was $1639 million. That figure was $971 million in INFY’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Public Storage (NYSE:PSA) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Infosys Limited (NYSE:INFY) is even less popular than PSA. Hedge funds dodged a bullet by taking a bearish stance towards INFY. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately INFY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); INFY investors were disappointed as the stock returned 19.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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