Here is What Hedge Funds Think About Viavi Solutions Inc (VIAV)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Viavi Solutions Inc (NASDAQ:VIAV) was in 19 hedge funds’ portfolios at the end of the third quarter of 2015. VIAV investors should pay attention to a decrease in hedge fund sentiment of late. There were 23 hedge funds in our database with VIAV 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 Exelixis, Inc. (NASDAQ:EXEL), Archrock Inc. (NYSE:AROC), and KB Home (NYSE:KBH) to gather more data points.

To most stock holders, hedge funds are perceived as worthless, old financial vehicles of the past. While there are greater than 8000 funds in operation today, We choose to focus on the masters of this group, about 700 funds. Most estimates calculate that this group of people oversee most of the smart money’s total asset base, and by following their top equity investments, Insider Monkey has found many investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, we’re going to analyze the new action surrounding Viavi Solutions Inc (NASDAQ:VIAV).

What does the smart money think about Viavi Solutions Inc (NASDAQ:VIAV)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Clint Carlson’s Carlson Capital has the most valuable position in Viavi Solutions Inc (NASDAQ:VIAV), worth close to $66.7 million, amounting to 0.8% of its total 13F portfolio. The second largest stake is held by George Soros of Soros Fund Management, with a $56.2 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Anand Parekh’s Alyeska Investment Group, and Tom Sandell’s Sandell Asset Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Carlson Capital).

Let’s now review hedge fund activity in other stocks similar to Viavi Solutions Inc (NASDAQ:VIAV). These stocks are Exelixis, Inc. (NASDAQ:EXEL), Archrock Inc. (NYSE:AROC), KB Home (NYSE:KBH), and Vonage Holdings Corp. (NYSE:VG). This group of stocks’ market valuations resemble VIAV’s market valuation.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $229 million in VIAV’s case. Archrock Inc. (NYSE:AROC) is the most popular stock in this table. On the other hand Exelixis, Inc. (NASDAQ:EXEL) is the least popular one with only 12 bullish hedge fund positions. Viavi Solutions Inc (NASDAQ:VIAV) 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 EXH might be a better candidate to consider a long position.