Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Amdocs Limited (NASDAQ:DOX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Amdocs Limited (NASDAQ:DOX) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds’ portfolios at the end of December. 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 Federal Realty Investment Trust (NYSE:FRT), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), and Universal Display Corporation (NASDAQ:OLED) to gather more data points. Our calculations also showed that DOX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the new hedge fund action regarding Amdocs Limited (NASDAQ:DOX).
What have hedge funds been doing with Amdocs Limited (NASDAQ:DOX)?
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DOX over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Amdocs Limited (NASDAQ:DOX), with a stake worth $194.7 million reported as of the end of September. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $141.9 million. D E Shaw, Ariel Investments, and Two Sigma Advisors 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 Lunia Capital allocated the biggest weight to Amdocs Limited (NASDAQ:DOX), around 1.64% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 0.9 percent of its 13F equity portfolio to DOX.
Judging by the fact that Amdocs Limited (NASDAQ:DOX) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that slashed their positions entirely by the end of the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, totaling about $3.1 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $0.9 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Amdocs Limited (NASDAQ:DOX) but similarly valued. These stocks are Federal Realty Investment Trust (NYSE:FRT), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), Universal Display Corporation (NASDAQ:OLED), and MGM Growth Properties LLC (NYSE:MGP). This group of stocks’ market values resemble DOX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRT | 22 | 108682 | -4 |
| AVAL | 7 | 22903 | 0 |
| OLED | 31 | 329009 | 5 |
| MGP | 29 | 815269 | 8 |
| Average | 22.25 | 318966 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $623 million in DOX’s case. Universal Display Corporation (NASDAQ:OLED) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 7 bullish hedge fund positions. Amdocs Limited (NASDAQ:DOX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately DOX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DOX were disappointed as the stock returned -29.6% during the same time 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 many of these stocks already outperformed the market so far this year.
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.
