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ICICI Bank Limited (IBN) Fell Out Of Favor With Hedge Funds

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 ICICI Bank Limited (NYSE:IBN) and determine whether hedge funds had an edge regarding this stock.

Is ICICI Bank Limited (NYSE:IBN) a good investment today? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund bets retreated by 4 in recent months. ICICI Bank Limited (NYSE:IBN) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. Our calculations also showed that IBN 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). There were 24 hedge funds in our database with IBN holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Gifford Combs - Dalton Investments

Gifford Combs of Dalton Investments

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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.Now we’re going to take a glance at the fresh hedge fund action regarding ICICI Bank Limited (NYSE:IBN).

What have hedge funds been doing with ICICI Bank Limited (NYSE:IBN)?

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2020. By comparison, 29 hedge funds held shares or bullish call options in IBN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Driehaus Capital held the most valuable stake in ICICI Bank Limited (NYSE:IBN), which was worth $53.8 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $48.8 million worth of shares. Pzena Investment Management, Think Investments, and Dalton Investments 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 ICICI Bank Limited (NYSE:IBN), around 14.56% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, setting aside 7.34 percent of its 13F equity portfolio to IBN.

Due to the fact that ICICI Bank Limited (NYSE:IBN) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that decided to sell off their full holdings last quarter. It’s worth mentioning that Patrick Degorce’s Theleme Partners dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $50.2 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund dumped about $43.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ICICI Bank Limited (NYSE:IBN) but similarly valued. These stocks are IHS Markit Ltd. (NYSE:INFO), Canadian Imperial Bank of Commerce (NYSE:CM), EOG Resources Inc (NYSE:EOG), Repros Therapeutics Inc (NASDAQ:RPRX), Seattle Genetics, Inc. (NASDAQ:SGEN), Synopsys, Inc. (NASDAQ:SNPS), and Brown-Forman Corporation (NYSE:BF). All of these stocks’ market caps are closest to IBN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INFO 44 1532350 0
CM 6 158840 -4
EOG 45 696070 1
RPRX 24 2716389 24
SGEN 38 8430115 11
SNPS 34 931266 3
BF 28 521945 0
Average 31.3 2140996 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $2141 million. That figure was $232 million in IBN’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 6 bullish hedge fund positions. ICICI Bank Limited (NYSE:IBN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBN is 18.6. 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. 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 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 surpassed the market by 19.3 percentage points. Unfortunately IBN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IBN investors were disappointed as the stock returned 5.8% in the third quarter 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 most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.