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Hedge Funds Have Never Been This Bullish On II-VI, Inc. (IIVI)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like II-VI, Inc. (NASDAQ:IIVI).

II-VI, Inc. (NASDAQ:IIVI) shareholders have witnessed an increase in support from the world’s most elite money managers lately. IIVI was in 31 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with IIVI positions 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 Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action surrounding II-VI, Inc. (NASDAQ:IIVI).

Hedge fund activity in II-VI, Inc. (NASDAQ:IIVI)

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 48% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IIVI over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

IIVI_dec2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alyeska Investment Group, managed by Anand Parekh, holds the biggest position in II-VI, Inc. (NASDAQ:IIVI). Alyeska Investment Group has a $32.1 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Israel Englander of Millennium Management, with a $30 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism include Robert Emil Zoellner’s Alpine Associates, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to II-VI, Inc. (NASDAQ:IIVI), around 2.2% of its portfolio. Divisar Capital is also relatively very bullish on the stock, designating 1.53 percent of its 13F equity portfolio to IIVI.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, established the largest position in II-VI, Inc. (NASDAQ:IIVI). Alyeska Investment Group had $32.1 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $20.7 million position during the quarter. The other funds with brand new IIVI positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Dmitry Balyasny’s Balyasny Asset Management, and Renaissance Technologies.

Let’s also examine 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 Embraer SA (NYSE:ERJ), UMB Financial Corporation (NASDAQ:UMBF), Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), and Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB). This group of stocks’ market caps match IIVI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERJ 13 76731 6
UMBF 14 77629 -2
SHI 3 13063 -2
HOMB 11 12529 -2
Average 10.25 44988 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $200 million in IIVI’s case. UMB Financial Corporation (NASDAQ:UMBF) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks II-VI, Inc. (NASDAQ:IIVI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IIVI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IIVI were disappointed as the stock returned -17.1% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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