We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about II-VI, Inc. (NASDAQ:IIVI).
II-VI, Inc. (NASDAQ:IIVI) was in 18 hedge funds’ portfolios at the end of December. IIVI investors should be aware of a decrease in hedge fund sentiment lately. There were 32 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most market participants, hedge funds are seen as worthless, old investment vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts hone in on the aristocrats of this group, approximately 850 funds. It is estimated that this group of investors have their hands on most of the smart money’s total asset base, and by keeping track of their matchless equity investments, Insider Monkey has unsheathed numerous investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the latest hedge fund action regarding II-VI, Inc. (NASDAQ:IIVI).
What does smart money think about II-VI, Inc. (NASDAQ:IIVI)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -44% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IIVI over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in II-VI, Inc. (NASDAQ:IIVI), which was worth $46.9 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $18.1 million worth of shares. Balyasny Asset Management, Divisar Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to II-VI, Inc. (NASDAQ:IIVI), around 4.89% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, earmarking 2.8 percent of its 13F equity portfolio to IIVI.
Judging by the fact that II-VI, Inc. (NASDAQ:IIVI) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that slashed their entire stakes heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the largest position of the 750 funds tracked by Insider Monkey, totaling close to $32.1 million in stock, and Robert Emil Zoellner’s Alpine Associates was right behind this move, as the fund dumped about $20.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 14 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as II-VI, Inc. (NASDAQ:IIVI) but similarly valued. We will take a look at International Game Technology PLC (NYSE:IGT), Kennametal Inc. (NYSE:KMT), Brady Corp (NYSE:BRC), and Virtu Financial Inc (NASDAQ:VIRT). This group of stocks’ market caps resemble IIVI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $128 million in IIVI’s case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand Brady Corp (NYSE:BRC) 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately IIVI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IIVI investors were disappointed as the stock returned -20.8% during the same time period 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.