Is Viavi Solutions Inc (VIAV) Going to Burn These Hedge Funds?

In this article we will check out the progression of hedge fund sentiment towards Viavi Solutions Inc (NASDAQ:VIAV) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Viavi Solutions Inc (NASDAQ:VIAV) has seen a decrease in support from the world’s most elite money managers recently. Viavi Solutions Inc (NASDAQ:VIAV) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistic is 37. There were 28 hedge funds in our database with VIAV holdings at the end of March. Our calculations also showed that VIAV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing Viavi Solutions Inc (NASDAQ:VIAV).

Do Hedge Funds Think VIAV Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VIAV over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of Viavi Solutions Inc (NASDAQ:VIAV), with a stake worth $46.3 million reported as of the end of June. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $32.7 million. Adage Capital Management, Millennium Management, and Citadel Investment Group 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 Boardman Bay Capital Management allocated the biggest weight to Viavi Solutions Inc (NASDAQ:VIAV), around 5.08% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, earmarking 1.23 percent of its 13F equity portfolio to VIAV.

Judging by the fact that Viavi Solutions Inc (NASDAQ:VIAV) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of funds that elected to cut their full holdings heading into Q3. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of the 750 funds followed by Insider Monkey, comprising an estimated $15.9 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dropped about $8.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Viavi Solutions Inc (NASDAQ:VIAV). We will take a look at Cerence Inc. (NASDAQ:CRNC), Parsons Corporation (NYSE:PSN), Companhia Energética de Minas Gerais (NYSE:CIG), Millicom International Cellular S.A. (NASDAQ:TIGO), Artisan Partners Asset Management Inc (NYSE:APAM), KB Home (NYSE:KBH), and Ryder System, Inc. (NYSE:R). This group of stocks’ market valuations are similar to VIAV’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $234 million in VIAV’s case. KB Home (NYSE:KBH) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 7 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 overall hedge fund sentiment score for VIAV is 63. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately VIAV wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on VIAV were disappointed as the stock returned -13% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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