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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Infosys Limited (NYSE:INFY) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Infosys Limited (NYSE:INFY) has experienced a decrease in hedge fund sentiment in recent months. Infosys Limited (NYSE:INFY) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. There were 27 hedge funds in our database with INFY positions at the end of the first quarter. Our calculations also showed that INFY 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. 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. With all of this in mind we’re going to check out the latest hedge fund action regarding Infosys Limited (NYSE:INFY).
What have hedge funds been doing with Infosys Limited (NYSE:INFY)?
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards INFY over the last 20 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Infosys Limited (NYSE:INFY), with a stake worth $276 million reported as of the end of September. Trailing Fisher Asset Management was Polaris Capital Management, which amassed a stake valued at $112.5 million. Oldfield Partners, LMR Partners, 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 Dalton Investments allocated the biggest weight to Infosys Limited (NYSE:INFY), around 7.29% of its 13F portfolio. Oldfield Partners is also relatively very bullish on the stock, setting aside 6.68 percent of its 13F equity portfolio to INFY.
Since Infosys Limited (NYSE:INFY) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who were dropping their full holdings last quarter. Interestingly, Rajiv Jain’s GQG Partners cut the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at close to $316.7 million in stock. James Chen’s fund, Ovata Capital Management, also said goodbye to its stock, about $4.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Infosys Limited (NYSE:INFY). These stocks are Dell Technologies Inc. (NYSE:DELL), Lululemon Athletica inc. (NASDAQ:LULU), Roper Technologies Inc. (NYSE:ROP), TAL Education Group (NYSE:TAL), TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), and Keurig Dr Pepper Inc. (NASDAQ:KDP). This group of stocks’ market valuations match INFY’s market valuation.
|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 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1211 million. That figure was $711 million in INFY’s case. Dell Technologies Inc. (NYSE:DELL) is the most popular stock in this table. On the other hand Banco Santander, S.A. (NYSE:SAN) is the least popular one with only 16 bullish hedge fund positions. Infosys Limited (NYSE:INFY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INFY is 36.8. 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. 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 still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on INFY as the stock returned 43% in the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.