Hedge Funds’ Insatiable Appetite For Fiserv, Inc. (FISV)

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 second 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 5 years and analyze what the smart money thinks of Fiserv, Inc. (NASDAQ:FISV) based on that data and determine whether they were really smart about the stock.

Fiserv, Inc. (NASDAQ:FISV) investors should be aware of an increase in hedge fund sentiment lately.Fiserv, Inc. (NASDAQ:FISV) was in 85 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics was previously 80. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 67 hedge funds in our database with FISV positions at the end of the previous quarter. Our calculations also showed that FISV isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to view the recent hedge fund action encompassing Fiserv, Inc. (NASDAQ:FISV).

How have hedgies been trading Fiserv, Inc. (NASDAQ:FISV)?

At the end of the second quarter, a total of 85 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in FISV a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Gabriel Plotkin’s Melvin Capital Management has the biggest position in Fiserv, Inc. (NASDAQ:FISV), worth close to $814.6 million, corresponding to 4.8% of its total 13F portfolio. On Melvin Capital Management’s heels is Melvin Capital Management, led by Gabriel Plotkin, holding a $524.2 million call position; the fund has 3.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include John Armitage’s Egerton Capital Limited, Ken Griffin’s Citadel Investment Group and Michael Lowenstein’s Kensico Capital. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to Fiserv, Inc. (NASDAQ:FISV), around 16.64% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, earmarking 11.51 percent of its 13F equity portfolio to FISV.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Maplelane Capital, managed by Leon Shaulov, initiated the most outsized position in Fiserv, Inc. (NASDAQ:FISV). Maplelane Capital had $168.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $112.9 million investment in the stock during the quarter. The other funds with brand new FISV positions are James Parsons’s Junto Capital Management, Simon Sadler’s Segantii Capital, and Ravi Chopra’s Azora Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fiserv, Inc. (NASDAQ:FISV) but similarly valued. We will take a look at Booking Holdings Inc. (NASDAQ:BKNG), Zoetis Inc (NYSE:ZTS), VMware, Inc. (NYSE:VMW), Automatic Data Processing, Inc. (NASDAQ:ADP), Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), Canadian National Railway Company (NYSE:CNI), and Colgate-Palmolive Company (NYSE:CL). This group of stocks’ market valuations are closest to FISV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BKNG 96 6098595 6
ZTS 58 1985007 -2
VMW 42 696435 15
ADP 49 1802478 3
REGN 49 1604372 7
CNI 28 2050472 2
CL 50 1699344 -3
Average 53.1 2276672 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.1 hedge funds with bullish positions and the average amount invested in these stocks was $2277 million. That figure was $4643 million in FISV’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 28 bullish hedge fund positions. Fiserv, Inc. (NASDAQ:FISV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FISV is 81.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately FISV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FISV were disappointed as the stock returned -1.4% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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