It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Fiserv, Inc. (NASDAQ:FISV).
Fiserv, Inc. (NASDAQ:FISV) was in 73 hedge funds’ portfolios at the end of the third quarter of 2019. FISV investors should be aware of an increase in enthusiasm from smart money in recent months. There were 48 hedge funds in our database with FISV positions at the end of the previous quarter. Our calculations also showed that FISV currently ranks 29th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
Larry Robbins of Glenview Capital
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s analyze the fresh hedge fund action encompassing Fiserv, Inc. (NASDAQ:FISV).
How have hedgies been trading Fiserv, Inc. (NASDAQ:FISV)?
At Q3’s end, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of 52% from the second quarter of 2019. On the other hand, there were a total of 31 hedge funds with a bullish position in FISV a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Egerton Capital Limited held the most valuable stake in Fiserv, Inc. (NASDAQ:FISV), which was worth $548.5 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $383.6 million worth of shares. Kensico Capital, Glenview Capital, and Steadfast Capital Management 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 Toscafund Asset Management allocated the biggest weight to Fiserv, Inc. (NASDAQ:FISV), around 16.98% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, dishing out 12.92 percent of its 13F equity portfolio to FISV.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Glenview Capital, managed by Larry Robbins, initiated the largest position in Fiserv, Inc. (NASDAQ:FISV). Glenview Capital had $281.5 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also made a $217.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Leon Cooperman’s Omega Advisors, Gabriel Plotkin’s Melvin Capital Management, and James Parsons’s Junto Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fiserv, Inc. (NASDAQ:FISV) but similarly valued. We will take a look at Celgene Corporation (NASDAQ:CELG), Automatic Data Processing, Inc. (NASDAQ:ADP), Duke Energy Corporation (NYSE:DUK), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market values resemble FISV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CELG | 93 | 12535017 | 5 |
| ADP | 49 | 3101422 | 6 |
| DUK | 28 | 1316998 | -4 |
| BNS | 15 | 677866 | -1 |
| Average | 46.25 | 4407826 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $4408 million. That figure was $3875 million in FISV’s case. Celgene Corporation (NASDAQ:CELG) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 15 bullish hedge fund positions. Fiserv, Inc. (NASDAQ:FISV) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FISV as the stock returned 58.3% in 2019 (through December 23rd) 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.
