Hedge Funds Are Nibbling On II-VI, Inc. (IIVI)

In this article you are going to find out whether hedge funds think II-VI, Inc. (NASDAQ:IIVI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is II-VI, Inc. (NASDAQ:IIVI) a healthy stock for your portfolio? Investors who are in the know are betting on the stock. The number of long hedge fund bets moved up by 2 lately. 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.

William Graves Boardman Bay Capital

William Graves of Boardman Bay Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the new hedge fund action regarding II-VI, Inc. (NASDAQ:IIVI).

What have hedge funds been doing with II-VI, Inc. (NASDAQ:IIVI)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the fourth quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in IIVI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is IIVI A Good Stock To Buy?

The largest stake in II-VI, Inc. (NASDAQ:IIVI) was held by Iridian Asset Management, which reported holding $24.5 million worth of stock at the end of September. It was followed by Adage Capital Management with a $15.7 million position. Other investors bullish on the company included Royce & Associates, Divisar Capital, and 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, designating 2.07 percent of its 13F equity portfolio to IIVI.

As industrywide interest jumped, key money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated 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 other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Minhua Zhang’s Weld Capital Management, and Brandon Haley’s Holocene Advisors.

Let’s check out hedge fund activity in other stocks similar to II-VI, Inc. (NASDAQ:IIVI). We will take a look at 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 values are similar to IIVI’s market value.

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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on IIVI as the stock returned 69.3% during the second quarter and outperformed the market by an even larger margin.

Follow Coherent Corp. (NASDAQ:COHR)

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