Were Hedge Funds Right About Dumping Fiserv, Inc. (FISV)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Fiserv, Inc. (NASDAQ:FISV) and determine whether the smart money was really smart about this stock.

Fiserv, Inc. (NASDAQ:FISV) was in 67 hedge funds’ portfolios at the end of March. FISV investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. There were 78 hedge funds in our database with FISV positions at the end of the previous quarter. Our calculations also showed that FISV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action regarding Fiserv, Inc. (NASDAQ:FISV).

What does smart money think about Fiserv, Inc. (NASDAQ:FISV)?

Heading into the second quarter of 2020, a total of 67 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FISV over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is FISV A Good Stock To Buy?

Of the funds tracked by Insider Monkey, John Armitage’s Egerton Capital Limited has the largest position in Fiserv, Inc. (NASDAQ:FISV), worth close to $617 million, accounting for 6.4% of its total 13F portfolio. On Egerton Capital Limited’s heels is Kensico Capital, managed by Michael Lowenstein, which holds a $290.1 million position; 7.9% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Ken Griffin’s Citadel Investment Group, Gabriel Plotkin’s Melvin Capital Management and Tim Hurd and Ed Magnus’s BlueSpruce Investments. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to Fiserv, Inc. (NASDAQ:FISV), around 55.23% of its 13F portfolio. Caldera Capital is also relatively very bullish on the stock, setting aside 14.41 percent of its 13F equity portfolio to FISV.

Because Fiserv, Inc. (NASDAQ:FISV) has experienced declining sentiment from hedge fund managers, it’s safe to say that there were a few funds who sold off their positions entirely heading into Q4. It’s worth mentioning that James Crichton’s Hitchwood Capital Management sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $84.3 million in stock. Jeffrey Hoffner’s fund, Engle Capital, also dropped its stock, about $28 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 11 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Fiserv, Inc. (NASDAQ:FISV). These stocks are Caterpillar Inc. (NYSE:CAT), Stryker Corporation (NYSE:SYK), Becton, Dickinson and Company (NYSE:BDX), and CME Group Inc (NASDAQ:CME). All of these stocks’ market caps are similar to FISV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAT 34 2186891 -18
SYK 48 903368 5
BDX 56 1266617 6
CME 62 2265510 8
Average 50 1655597 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $1656 million. That figure was $2949 million in FISV’s case. CME Group Inc (NASDAQ:CME) is the most popular stock in this table. On the other hand Caterpillar Inc. (NYSE:CAT) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Fiserv, Inc. (NASDAQ:FISV) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately FISV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FISV were disappointed as the stock returned 2.6% during the second quarter (through June 25th) 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.