Hedge Funds Souring On Pivotal Investment Corporation II (PIC)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Pivotal Investment Corporation II (NYSE:PIC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Pivotal Investment Corporation II (NYSE:PIC) a great stock to buy now? Investors who are in the know were becoming less hopeful. The number of long hedge fund bets retreated by 3 recently. Our calculations also showed that PIC 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

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. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding Pivotal Investment Corporation II (NYSE:PIC).

What have hedge funds been doing with Pivotal Investment Corporation II (NYSE:PIC)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in PIC a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alec Litowitz and Ross Laser’s Magnetar Capital has the largest position in Pivotal Investment Corporation II (NYSE:PIC), worth close to $12.6 million, comprising 0.3% of its total 13F portfolio. On Magnetar Capital’s heels is Steven Clark of Omni Partners, with a $10.5 million position; 0.9% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish comprise Jeffrey Tannenbaum’s Fir Tree, Sander Gerber’s Hudson Bay Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Omni Partners allocated the biggest weight to Pivotal Investment Corporation II (NYSE:PIC), around 0.92% of its 13F portfolio. Fir Tree is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to PIC.

Because Pivotal Investment Corporation II (NYSE:PIC) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who sold off their full holdings last quarter. It’s worth mentioning that Michael Platt and William Reeves’s BlueCrest Capital Mgmt. cut the largest investment of the 750 funds watched by Insider Monkey, worth about $4.1 million in stock, and John Thiessen’s Vertex One Asset Management was right behind this move, as the fund sold off about $3.1 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pivotal Investment Corporation II (NYSE:PIC) but similarly valued. These stocks are Oportun Financial Corporation (NASDAQ:OPRT), Calithera Biosciences Inc (NASDAQ:CALA), Peoples Financial Services Corp. (NASDAQ:PFIS), and Tidewater Inc. (NYSE:TDW). All of these stocks’ market caps match PIC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OPRT 8 3142 4
CALA 12 71096 -2
PFIS 1 3174 0
TDW 8 56765 -2
Average 7.25 33544 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $56 million in PIC’s case. Calithera Biosciences Inc (NASDAQ:CALA) is the most popular stock in this table. On the other hand Peoples Financial Services Corp. (NASDAQ:PFIS) is the least popular one with only 1 bullish hedge fund positions. Pivotal Investment Corporation II (NYSE:PIC) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately PIC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PIC were disappointed as the stock returned 2.4% 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.