How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Interpublic Group of Companies Inc (NYSE:IPG) and determine whether hedge funds had an edge regarding this stock.
Is Interpublic Group of Companies Inc (NYSE:IPG) the right pick for your portfolio? Money managers were becoming more confident. The number of bullish hedge fund positions advanced by 1 lately. Interpublic Group of Companies Inc (NYSE:IPG) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. Our calculations also showed that IPG 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.
To most market participants, hedge funds are assumed to be worthless, outdated financial tools of years past. While there are more than 8000 funds with their doors open today, Our experts hone in on the elite of this group, approximately 850 funds. Most estimates calculate that this group of people manage most of all hedge funds’ total asset base, and by monitoring their first-class investments, Insider Monkey has determined various investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Interpublic Group of Companies Inc (NYSE:IPG).
What does smart money think about Interpublic Group of Companies Inc (NYSE:IPG)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IPG over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Ariel Investments was the largest shareholder of Interpublic Group of Companies Inc (NYSE:IPG), with a stake worth $154.9 million reported as of the end of September. Trailing Ariel Investments was Pzena Investment Management, which amassed a stake valued at $110.8 million. Citadel Investment Group, Arrowstreet Capital, and AQR Capital Management 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 Ariel Investments allocated the biggest weight to Interpublic Group of Companies Inc (NYSE:IPG), around 2.36% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.72 percent of its 13F equity portfolio to IPG.
As one would reasonably expect, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Interpublic Group of Companies Inc (NYSE:IPG). Arrowstreet Capital had $52.3 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $6.9 million investment in the stock during the quarter. The other funds with brand new IPG positions are Israel Englander’s Millennium Management, Matthew Hulsizer’s PEAK6 Capital Management, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Interpublic Group of Companies Inc (NYSE:IPG) but similarly valued. These stocks are American Airlines Group Inc (NASDAQ:AAL), RealPage, Inc. (NASDAQ:RP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Dolby Laboratories, Inc. (NYSE:DLB), UGI Corp (NYSE:UGI), Diamondback Energy Inc (NASDAQ:FANG), and Carlisle Companies, Inc. (NYSE:CSL). This group of stocks’ market values are similar to IPG’s market value.
|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 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $501 million in IPG’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 16 bullish hedge fund positions. Interpublic Group of Companies Inc (NYSE:IPG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IPG is 33.5. 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 negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately IPG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IPG investors were disappointed as the stock returned -1.5% in the third 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 in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.