Hedge Funds Souring On Infosys Limited (INFY)

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.

Is Infosys Limited (NYSE:INFY) a cheap investment now? The smart money is in a pessimistic mood. The number of bullish hedge fund positions dropped by 1 lately. Our calculations also showed that INFY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). INFY was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 25 hedge funds in our database with INFY positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Fisher of Fisher Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Infosys Limited (NYSE:INFY).

How have hedgies been trading Infosys Limited (NYSE:INFY)?

Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in INFY a year ago. So, let’s examine 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 $427.6 million reported as of the end of September. Trailing Fisher Asset Management was GQG Partners, which amassed a stake valued at $374.3 million. Polaris Capital Management, AQR Capital Management, and LMR 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 Polaris Capital Management allocated the biggest weight to Infosys Limited (NYSE:INFY), around 9.31% of its portfolio. Sensato Capital Management is also relatively very bullish on the stock, setting aside 3.87 percent of its 13F equity portfolio to INFY.

Because Infosys Limited (NYSE:INFY) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that slashed their full holdings heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $31.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $6.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Infosys Limited (NYSE:INFY) but similarly valued. These stocks are Simon Property Group, Inc (NYSE:SPG), Global Payments Inc (NYSE:GPN), ServiceNow Inc (NYSE:NOW), and Norfolk Southern Corporation (NYSE:NSC). All of these stocks’ market caps are similar to INFY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.25 hedge funds with bullish positions and the average amount invested in these stocks was $2859 million. That figure was $1438 million in INFY’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Simon Property Group, Inc (NYSE:SPG) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Infosys Limited (NYSE:INFY) is even less popular than SPG. Hedge funds dodged a bullet by taking a bearish stance towards INFY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately INFY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); INFY investors were disappointed as the stock returned -12.5% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.