World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Avaya Holdings Corp. (NYSE:AVYA) was in 40 hedge funds’ portfolios at the end of the first quarter of 2019. AVYA shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 36 hedge funds in our database with AVYA positions at the end of the previous quarter. Our calculations also showed that AVYA 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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the recent hedge fund action regarding Avaya Holdings Corp. (NYSE:AVYA).
How have hedgies been trading Avaya Holdings Corp. (NYSE:AVYA)?
At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AVYA over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Anchorage Advisors was the largest shareholder of Avaya Holdings Corp. (NYSE:AVYA), with a stake worth $56.5 million reported as of the end of March. Trailing Anchorage Advisors was Highland Capital Management, which amassed a stake valued at $50.6 million. Taconic Capital, Point72 Asset Management, and TOMS Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds were breaking ground themselves. TOMS Capital, managed by Benjamin Pass, assembled the most valuable call position in Avaya Holdings Corp. (NYSE:AVYA). TOMS Capital had $25.2 million invested in the company at the end of the quarter. Michel Massoud’s Melqart Asset Management also made a $18.6 million investment in the stock during the quarter. The other funds with brand new AVYA positions are Peter S. Park’s Park West Asset Management, Lee Ainslie’s Maverick Capital, and Isaac Corre’s Governors Lane.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Avaya Holdings Corp. (NYSE:AVYA) but similarly valued. These stocks are Itron, Inc. (NASDAQ:ITRI), Flagstar Bancorp Inc (NYSE:FBC), Enanta Pharmaceuticals Inc (NASDAQ:ENTA), and Verra Mobility Corporation (NASDAQ:VRRM). This group of stocks’ market values are closest to AVYA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITRI | 15 | 415956 | 1 |
| FBC | 14 | 77882 | 2 |
| ENTA | 20 | 290378 | 0 |
| VRRM | 14 | 187599 | 1 |
| Average | 15.75 | 242954 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $427 million in AVYA’s case. Enanta Pharmaceuticals Inc (NASDAQ:ENTA) is the most popular stock in this table. On the other hand Flagstar Bancorp Inc (NYSE:FBC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Avaya Holdings Corp. (NYSE:AVYA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AVYA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AVYA were disappointed as the stock returned -27.8% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
