Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Invesco Ltd. (NYSE:IVZ) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of March. At the end of this article we will also compare IVZ to other stocks including Robert Half International Inc. (NYSE:RHI), PulteGroup, Inc. (NYSE:PHM), and Hyatt Hotels Corporation (NYSE:H) to get a better sense of its popularity.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s take a glance at the recent hedge fund action encompassing Invesco Ltd. (NYSE:IVZ).
Hedge fund activity in Invesco Ltd. (NYSE:IVZ)
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in IVZ a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Invesco Ltd. (NYSE:IVZ) was held by Pzena Investment Management, which reported holding $51.1 million worth of stock at the end of March. It was followed by Select Equity Group with a $49.6 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Two Sigma Advisors.
Since Invesco Ltd. (NYSE:IVZ) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few funds that slashed their full holdings heading into Q3. Interestingly, Ray Dalio’s Bridgewater Associates said goodbye to the biggest position of the 700 funds watched by Insider Monkey, comprising about $32.8 million in stock. Ravi Chopra’s fund, Azora Capital, also said goodbye to its stock, about $15.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Invesco Ltd. (NYSE:IVZ). We will take a look at Robert Half International Inc. (NYSE:RHI), PulteGroup, Inc. (NYSE:PHM), Hyatt Hotels Corporation (NYSE:H), and Kilroy Realty Corp (NYSE:KRC). All of these stocks’ market caps are closest to IVZ’s market cap.
|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 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $173 million in IVZ’s case. Robert Half International Inc. (NYSE:RHI) is the most popular stock in this table. On the other hand Kilroy Realty Corp (NYSE:KRC) is the least popular one with only 11 bullish hedge fund positions. Invesco Ltd. (NYSE:IVZ) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on IVZ as the stock returned 7.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.