Is Infosys Limited (NYSE:INFY) 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, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.
Is Infosys Limited (NYSE:INFY) a splendid investment right now? The smart money is getting more bullish. The number of bullish hedge fund bets moved up by 2 lately. Our calculations also showed that INFY isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a look at the key hedge fund action encompassing Infosys Limited (NYSE:INFY).
How are hedge funds trading Infosys Limited (NYSE:INFY)?
Heading into the fourth quarter of 2018, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards INFY over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Infosys Limited (NYSE:INFY), with a stake worth $419.3 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $208.9 million. Polaris Capital Management, Yacktman Asset Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key money managers were leading the bulls’ herd. McKinley Capital Management, managed by Robert B. Gillam, established the most valuable position in Infosys Limited (NYSE:INFY). McKinley Capital Management had $0.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $0.4 million position during the quarter. The other funds with brand new INFY positions are Bruce Kovner’s Caxton Associates LP and D. E. Shaw’s D E Shaw.
Let’s also examine hedge fund activity in other stocks similar to Infosys Limited (NYSE:INFY). We will take a look at Ecolab Inc. (NYSE:ECL), Tesla Inc. (NASDAQ:TSLA), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and Mizuho Financial Group Inc. (NYSE:MFG). This group of stocks’ market valuations are closest to INFY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECL | 23 | 2568307 | -7 |
| TSLA | 31 | 373713 | 12 |
| CTSH | 42 | 2032175 | 0 |
| MFG | 3 | 7752 | -1 |
| Average | 24.75 | 1245487 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.25 billion. That figure was $1.13 billion in INFY’s case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 3 bullish hedge fund positions. Infosys Limited (NYSE:INFY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CTSH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
