Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Victory Capital Holdings, Inc. (NASDAQ:VCTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare VCTR to other stocks including GasLog Ltd (NYSE:GLOG), Southwestern Energy Company (NYSE:SWN), and Innovative Industrial Properties, Inc. (NYSE:IIPR) to get a better sense of its popularity.
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 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 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to go over the new hedge fund action encompassing Victory Capital Holdings, Inc. (NASDAQ:VCTR).
What does smart money think about Victory Capital Holdings, Inc. (NASDAQ:VCTR)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in VCTR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of Victory Capital Holdings, Inc. (NASDAQ:VCTR), with a stake worth $20.9 million reported as of the end of September. Trailing Impax Asset Management was Renaissance Technologies, which amassed a stake valued at $7.6 million. BlueMar Capital Management, Azora Capital, and Interval Partners 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 BlueMar Capital Management allocated the biggest weight to Victory Capital Holdings, Inc. (NASDAQ:VCTR), around 1.79% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, dishing out 1.24 percent of its 13F equity portfolio to VCTR.
Since Victory Capital Holdings, Inc. (NASDAQ:VCTR) has experienced bearish sentiment from the smart money, logic holds that there is a sect of funds that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Noam Gottesman’s GLG Partners dumped the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $0.5 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund cut about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Victory Capital Holdings, Inc. (NASDAQ:VCTR). These stocks are GasLog Ltd (NYSE:GLOG), Southwestern Energy Company (NYSE:SWN), Innovative Industrial Properties, Inc. (NYSE:IIPR), and M/I Homes Inc (NYSE:MHO). All of these stocks’ market caps resemble VCTR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GLOG | 13 | 43502 | 0 |
| SWN | 14 | 144813 | -4 |
| IIPR | 15 | 50763 | 5 |
| MHO | 18 | 63238 | 8 |
| Average | 15 | 75579 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $48 million in VCTR’s case. M/I Homes Inc (NYSE:MHO) is the most popular stock in this table. On the other hand GasLog Ltd (NYSE:GLOG) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Victory Capital Holdings, Inc. (NASDAQ:VCTR) is even less popular than GLOG. Hedge funds clearly dropped the ball on VCTR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on VCTR as the stock returned 33.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
