Hedge Funds Are Selling Virtu Financial Inc (VIRT)

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Virtu Financial Inc (NASDAQ:VIRT) was in 12 hedge funds’ portfolios at the end of the third quarter of 2015. VIRT shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 18 hedge funds in our database with VIRT holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Piedmont Natural Gas Company, Inc. (NYSE:PNY), Horizon Pharma Inc (NASDAQ:HZNP), and Tanger Factory Outlet Centers Inc. (NYSE:SKT) to gather more data points.

Today there are numerous formulas market participants employ to appraise publicly traded companies. A couple of the most under-the-radar formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best money managers can beat the S&P 500 by a healthy amount (see the details here).

Keeping this in mind, let’s review the key action encompassing Virtu Financial Inc (NASDAQ:VIRT).

What have hedge funds been doing with Virtu Financial Inc (NASDAQ:VIRT)?

At the Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, EJF Capital, managed by Emanuel J. Friedman, holds the largest position in Virtu Financial Inc (NASDAQ:VIRT). EJF Capital has a $20 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund is Citadel Investment Group, managed by Ken Griffin, which holds a $15 million position; less than 0.1%% of its 13F portfolio is allocated to the company. The remaining members of the smart money with similar optimism encompass Panayotis Takis Sparaggis’s Alkeon Capital Management, Mark Kingdon’s Kingdon Capital and Wojciech Uzdelewicz’s Espalier Global Management.

Since Virtu Financial Inc (NASDAQ:VIRT) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds that slashed their positions entirely heading into Q4. It’s worth mentioning that Robert Pohly’s Samlyn Capital dumped the biggest stake of the 700 funds tracked by Insider Monkey, totaling an estimated $9.8 million in stock, and Joseph A. Jolson’s Harvest Capital Strategies was right behind this move, as the fund dumped about $6.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Virtu Financial Inc (NASDAQ:VIRT). We will take a look at Piedmont Natural Gas Company, Inc. (NYSE:PNY), Horizon Pharma Inc (NASDAQ:HZNP), Tanger Factory Outlet Centers Inc. (NYSE:SKT), and MGIC Investment Corp. (NYSE:MTG). This group of stocks’ market caps are similar to VIRT’s market cap.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $675 million, which is significantly higher than the $73 million figure in VIRT’s case. MGIC Investment Corp. (NYSE:MTG) is the most popular stock in this table, while Piedmont Natural Gas Company, Inc. (NYSE:PNY) is the least popular one with only 10 bullish hedge fund positions. Virtu Financial Inc (NASDAQ:VIRT) 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 MTG might be a better candidate to consider a long position.