At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Viavi Solutions Inc (NASDAQ:VIAV) the right pick for your portfolio? Prominent investors are selling. The number of bullish hedge fund bets decreased by 6 recently. Our calculations also showed that VIAV isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the key hedge fund action encompassing Viavi Solutions Inc (NASDAQ:VIAV).
Hedge fund activity in Viavi Solutions Inc (NASDAQ:VIAV)
Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in VIAV a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the most valuable position in Viavi Solutions Inc (NASDAQ:VIAV), worth close to $96.6 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $59 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Dmitry Balyasny’s Balyasny Asset Management, Israel Englander’s Millennium Management and Ken Fisher’s Fisher Asset Management.
Due to the fact that Viavi Solutions Inc (NASDAQ:VIAV) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that slashed their entire stakes by the end of the second quarter. It’s worth mentioning that Glenn Russell Dubin’s Highbridge Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, valued at close to $11.3 million in stock, and C. Jonathan Gattman’s Cloverdale Capital Management was right behind this move, as the fund sold off about $10.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 6 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Viavi Solutions Inc (NASDAQ:VIAV). We will take a look at Dicks Sporting Goods Inc (NYSE:DKS), FS KKR Capital Corp. (NYSE:FSK), Rogers Corporation (NYSE:ROG), and Colfax Corporation (NYSE:CFX). All of these stocks’ market caps are similar to VIAV’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 $295 million. That figure was $293 million in VIAV’s case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand FS KKR Capital Corp. (NYSE:FSK) is the least popular one with only 16 bullish hedge fund positions. Viavi Solutions Inc (NASDAQ:VIAV) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on VIAV, though not to the same extent, as the stock returned 5.4% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.