2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Amdocs Limited (NASDAQ:DOX) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Amdocs Limited (NASDAQ:DOX) a bargain? The smart money is in a bearish mood. The number of bullish hedge fund positions shrunk by 2 lately. Our calculations also showed that DOX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). DOX was in 23 hedge funds’ portfolios at the end of the third quarter of 2019. There were 25 hedge funds in our database with DOX positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing Amdocs Limited (NASDAQ:DOX).
Hedge fund activity in Amdocs Limited (NASDAQ:DOX)
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in DOX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Amdocs Limited (NASDAQ:DOX), which was worth $174.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $105.6 million worth of shares. D E Shaw, Ariel Investments, and Two Sigma Advisors 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 Lunia Capital allocated the biggest weight to Amdocs Limited (NASDAQ:DOX), around 3.65% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, dishing out 1.33 percent of its 13F equity portfolio to DOX.
Because Amdocs Limited (NASDAQ:DOX) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management dumped the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $6.4 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $2.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Amdocs Limited (NASDAQ:DOX) but similarly valued. These stocks are CyrusOne Inc (NASDAQ:CONE), SEI Investments Company (NASDAQ:SEIC), Mohawk Industries, Inc. (NYSE:MHK), and Crown Holdings, Inc. (NYSE:CCK). All of these stocks’ market caps resemble DOX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CONE | 21 | 314844 | 3 |
| SEIC | 23 | 390443 | 1 |
| MHK | 32 | 1522732 | -1 |
| CCK | 42 | 1266913 | 7 |
| Average | 29.5 | 873733 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $874 million. That figure was $621 million in DOX’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 21 bullish hedge fund positions. Amdocs Limited (NASDAQ:DOX) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately DOX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DOX investors were disappointed as the stock returned 25.5% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
