We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Virtu Financial Inc (NASDAQ:VIRT) in this article.
Virtu Financial Inc (NASDAQ:VIRT) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that VIRT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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. 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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the new hedge fund action encompassing Virtu Financial Inc (NASDAQ:VIRT).
What does smart money think about Virtu Financial Inc (NASDAQ:VIRT)?
At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in VIRT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Virtu Financial Inc (NASDAQ:VIRT) was held by Royce & Associates, which reported holding $64.1 million worth of stock at the end of September. It was followed by Callodine Capital Management with a $9.1 million position. Other investors bullish on the company included Point72 Asset Management, Winton Capital Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Virtu Financial Inc (NASDAQ:VIRT), around 3.61% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.57 percent of its 13F equity portfolio to VIRT.
Since Virtu Financial Inc (NASDAQ:VIRT) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Usman Waheed’s Strycker View Capital sold off the biggest investment of the 750 funds watched by Insider Monkey, worth close to $5.1 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also dropped its stock, about $4.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Virtu Financial Inc (NASDAQ:VIRT). These stocks are Simmons First National Corporation (NASDAQ:SFNC), NeoGenomics, Inc. (NASDAQ:NEO), South Jersey Industries Inc (NYSE:SJI), and Atlantic Union Bankshares Corporation (NASDAQ:AUB). This group of stocks’ market valuations are closest to VIRT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SFNC | 6 | 25107 | -5 |
| NEO | 12 | 48630 | -2 |
| SJI | 18 | 141726 | 4 |
| AUB | 8 | 20327 | 5 |
| Average | 11 | 58948 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $93 million in VIRT’s case. South Jersey Industries Inc (NYSE:SJI) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 6 bullish hedge fund positions. Virtu Financial Inc (NASDAQ:VIRT) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on VIRT as the stock returned 34.1% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
