Does Vedanta Ltd (NYSE:VEDL) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Vedanta Ltd (NYSE:VEDL) was in 8 hedge funds’ portfolios at the end of June. VEDL has seen an increase in activity from the world’s largest hedge funds lately. There were 6 hedge funds in our database with VEDL positions at the end of the previous quarter. Our calculations also showed that VEDL isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the key hedge fund action regarding Vedanta Ltd (NYSE:VEDL).
Hedge fund activity in Vedanta Ltd (NYSE:VEDL)
At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VEDL over the last 16 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Vedanta Ltd (NYSE:VEDL), which was worth $20.1 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $19 million worth of shares. Moreover, Citadel Investment Group, Whitebox Advisors, and D E Shaw were also bullish on Vedanta Ltd (NYSE:VEDL), allocating a large percentage of their portfolios to this stock.
Now, some big names have jumped into Vedanta Ltd (NYSE:VEDL) headfirst. Whitebox Advisors, managed by Andy Redleaf, assembled the most valuable position in Vedanta Ltd (NYSE:VEDL). Whitebox Advisors had $5.3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $1 million investment in the stock during the quarter. The other funds with brand new VEDL positions are Matthew Tewksbury’s Stevens Capital Management and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vedanta Ltd (NYSE:VEDL) but similarly valued. These stocks are Bio-Rad Laboratories, Inc. (NYSE:BIO), Fair Isaac Corporation (NYSE:FICO), Booz Allen Hamilton Holding Corporation (NYSE:BAH), and American Financial Group, Inc. (NYSE:AFG). This group of stocks’ market valuations match VEDL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BIO | 36 | 954442 | -1 |
| FICO | 34 | 730765 | 7 |
| BAH | 31 | 369488 | 12 |
| AFG | 22 | 366752 | -8 |
| Average | 30.75 | 605362 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $53 million in VEDL’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand American Financial Group, Inc. (NYSE:AFG) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Vedanta Ltd (NYSE:VEDL) is even less popular than AFG. Hedge funds dodged a bullet by taking a bearish stance towards VEDL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VEDL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VEDL investors were disappointed as the stock returned -14.7% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
