Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: IHS Markit Ltd. (NASDAQ:INFO).
IHS Markit Ltd. (NASDAQ:INFO) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that info isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to view the key hedge fund action encompassing IHS Markit Ltd. (NASDAQ:INFO).
What does the smart money think about IHS Markit Ltd. (NASDAQ:INFO)?
Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in INFO over the last 15 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in IHS Markit Ltd. (NASDAQ:INFO) was held by Farallon Capital, which reported holding $332.1 million worth of stock at the end of March. It was followed by Select Equity Group with a $331.5 million position. Other investors bullish on the company included Palestra Capital Management, Echo Street Capital Management, and Atalan Capital.
As one would reasonably expect, specific money managers have been driving this bullishness. Duquesne Capital, managed by Stanley Druckenmiller, created the most outsized position in IHS Markit Ltd. (NASDAQ:INFO). Duquesne Capital had $13.3 million invested in the company at the end of the quarter. James Dondero’s Highland Capital Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Bruce Kovner’s Caxton Associates LP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as IHS Markit Ltd. (NASDAQ:INFO) but similarly valued. We will take a look at Verisign, Inc. (NASDAQ:VRSN), Rogers Communications Inc. (NYSE:RCI), Global Payments Inc (NYSE:GPN), and Interactive Brokers Group, Inc. (IEX:IBKR). This group of stocks’ market caps match INFO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRSN | 31 | 5137304 | 1 |
| RCI | 15 | 559786 | 2 |
| GPN | 29 | 557425 | 2 |
| IBKR | 23 | 940831 | 2 |
| Average | 24.5 | 1798837 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $1799 million. That figure was $1155 million in INFO’s case. Verisign, Inc. (NASDAQ:VRSN) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 15 bullish hedge fund positions. IHS Markit Ltd. (NASDAQ:INFO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on INFO as the stock returned 6.3% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
