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Were Hedge Funds Right About Piling Into Viavi Solutions Inc (VIAV) in September?

Is Viavi Solutions Inc (NASDAQ:VIAV) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Viavi Solutions Inc (NASDAQ:VIAV) was in 30 hedge funds’ portfolios at the end of the third quarter of 2019. VIAV shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 22 hedge funds in our database with VIAV positions at the end of the previous quarter. Our calculations also showed that VIAV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the latest hedge fund action surrounding Viavi Solutions Inc (NASDAQ:VIAV).

What does smart money think about Viavi Solutions Inc (NASDAQ:VIAV)?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VIAV over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

VIAV_dec2019

The largest stake in Viavi Solutions Inc (NASDAQ:VIAV) was held by Citadel Investment Group, which reported holding $95.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $78.4 million position. Other investors bullish on the company included Columbus Circle Investors, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Adi Capital Management allocated the biggest weight to Viavi Solutions Inc (NASDAQ:VIAV), around 6.97% of its portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, earmarking 2.69 percent of its 13F equity portfolio to VIAV.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Viavi Solutions Inc (NASDAQ:VIAV). Arrowstreet Capital had $17.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $16.2 million position during the quarter. The following funds were also among the new VIAV investors: Leon Shaulov’s Maplelane Capital, Chuck Royce’s Royce & Associates, and Paritosh Gupta’s Adi Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Viavi Solutions Inc (NASDAQ:VIAV). We will take a look at Intelsat S.A. (NYSE:I), Avista Corp (NYSE:AVA), BankUnited, Inc. (NYSE:BKU), and Nektar Therapeutics (NASDAQ:NKTR). This group of stocks’ market values are closest to VIAV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
I 48 1063619 6
AVA 15 137623 4
BKU 21 420103 2
NKTR 17 154689 -2
Average 25.25 444009 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $333 million in VIAV’s case. Intelsat S.A. (NYSE:I) is the most popular stock in this table. On the other hand Avista Corp (NYSE:AVA) is the least popular one with only 15 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on VIAV, though not to the same extent, as the stock returned 7.2% during the first two months of the fourth quarter and outperformed the market as well.

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

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