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 Veoneer, Inc. (NASDAQ:VNE) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in Veoneer, Inc. (NASDAQ:VNE) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Independence Realty Trust Inc (NYSE:IRT), EnPro Industries, Inc. (NYSE:NPO), and United Fire Group, Inc. (NASDAQ:UFCS) to gather more data points. Our calculations also showed that VNE 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.
To most investors, hedge funds are seen as slow, outdated investment vehicles of the past. While there are greater than 8000 funds with their doors open at the moment, Our experts hone in on the aristocrats of this club, approximately 850 funds. These hedge fund managers control the majority of the hedge fund industry’s total capital, and by monitoring their finest equity investments, Insider Monkey has discovered a number of investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% 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. 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. Keeping this in mind we’re going to analyze the new hedge fund action regarding Veoneer, Inc. (NASDAQ:VNE).
How are hedge funds trading Veoneer, Inc. (NASDAQ:VNE)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VNE over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cevian Capital held the most valuable stake in Veoneer, Inc. (NASDAQ:VNE), which was worth $58.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $9.2 million worth of shares. Millennium Management, Point72 Asset Management, and 13D 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 Cevian Capital allocated the biggest weight to Veoneer, Inc. (NASDAQ:VNE), around 18.24% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to VNE.
Because Veoneer, Inc. (NASDAQ:VNE) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their positions entirely last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $1.8 million in stock, and Andre F. Perold’s HighVista Strategies was right behind this move, as the fund cut about $0.8 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 – not necessarily in the same industry as Veoneer, Inc. (NASDAQ:VNE) but similarly valued. We will take a look at Independence Realty Trust Inc (NYSE:IRT), EnPro Industries, Inc. (NYSE:NPO), United Fire Group, Inc. (NASDAQ:UFCS), and The Gorman-Rupp Company (NYSE:GRC). All of these stocks’ market caps match VNE’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 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $76 million in VNE’s case. Independence Realty Trust Inc (NYSE:IRT) is the most popular stock in this table. On the other hand United Fire Group, Inc. (NASDAQ:UFCS) is the least popular one with only 5 bullish hedge fund positions. Veoneer, Inc. (NASDAQ:VNE) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on VNE as the stock returned 46% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.