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Hedge Funds Ditching ICF International Inc (ICFI)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of ICF International Inc (NASDAQ:ICFI) based on that data and determine whether they were really smart about the stock.

Is ICF International Inc (NASDAQ:ICFI) an exceptional stock to buy now? The best stock pickers were reducing their bets on the stock. The number of long hedge fund positions dropped by 1 recently. Our calculations also showed that ICFI 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.

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. Now let’s take a look at the recent hedge fund action encompassing ICF International Inc (NASDAQ:ICFI).

How have hedgies been trading ICF International Inc (NASDAQ:ICFI)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in ICFI a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in ICF International Inc (NASDAQ:ICFI) was held by Driehaus Capital, which reported holding $8.8 million worth of stock at the end of September. It was followed by Third Avenue Management with a $6.4 million position. Other investors bullish on the company included Marshall Wace LLP, Two Sigma Advisors, and Winton Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to ICF International Inc (NASDAQ:ICFI), around 0.95% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to ICFI.

Seeing as ICF International Inc (NASDAQ:ICFI) has faced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds who sold off their entire stakes last quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth about $0.6 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ICF International Inc (NASDAQ:ICFI) but similarly valued. We will take a look at GCP Applied Technologies Inc. (NYSE:GCP), Safety Insurance Group, Inc. (NASDAQ:SAFT), Extended Stay America Inc (NASDAQ:STAY), and First Majestic Silver Corp (NYSE:AG). This group of stocks’ market valuations are similar to ICFI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GCP 12 328231 -8
SAFT 12 47637 -3
STAY 18 260865 -17
AG 13 58265 -3
Average 13.75 173750 -7.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $26 million in ICFI’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand GCP Applied Technologies Inc. (NYSE:GCP) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks ICF International Inc (NASDAQ:ICFI) is even less popular than GCP. Hedge funds dodged a bullet by taking a bearish stance towards ICFI. 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 ICFI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ICFI investors were disappointed as the stock returned -5.4% 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.