Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Is Virtusa Corporation (NASDAQ:VRTU) the right investment to pursue these days? The best stock pickers are turning less bullish. The number of bullish hedge fund positions retreated by 4 recently. Our calculations also showed that VRTU isn’t among the 30 most popular stocks among hedge funds.
According to most investors, hedge funds are perceived as slow, outdated investment tools of yesteryear. While there are greater than 8000 funds trading today, Our experts choose to focus on the moguls of this club, approximately 750 funds. Most estimates calculate that this group of people oversee the majority of all hedge funds’ total capital, and by observing their first-class equity investments, Insider Monkey has uncovered various investment strategies that have historically outpaced the market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
We’re going to review the latest hedge fund action surrounding Virtusa Corporation (NASDAQ:VRTU).
How are hedge funds trading Virtusa Corporation (NASDAQ:VRTU)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in VRTU a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Virtusa Corporation (NASDAQ:VRTU) was held by Renaissance Technologies, which reported holding $25.4 million worth of stock at the end of March. It was followed by Portolan Capital Management with a $12.9 million position. Other investors bullish on the company included Driehaus Capital, Marshall Wace LLP, and P.A.W. CAPITAL PARTNERS.
Seeing as Virtusa Corporation (NASDAQ:VRTU) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their entire stakes last quarter. Interestingly, David Costen Haley’s HBK Investments cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $0.7 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dropped about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Virtusa Corporation (NASDAQ:VRTU). We will take a look at B&G Foods, Inc. (NYSE:BGS), PROS Holdings, Inc. (NYSE:PRO), TIER REIT, Inc. (NYSE:TIER), and Knowles Corp (NYSE:KN). This group of stocks’ market values match VRTU’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BGS | 19 | 195714 | 9 |
| PRO | 19 | 159084 | 4 |
| TIER | 12 | 127254 | 5 |
| KN | 17 | 223503 | -7 |
| Average | 16.75 | 176389 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $63 million in VRTU’s case. B&G Foods, Inc. (NYSE:BGS) is the most popular stock in this table. On the other hand TIER REIT, Inc. (NYSE:TIER) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Virtusa Corporation (NASDAQ:VRTU) is even less popular than TIER. Hedge funds dodged a bullet by taking a bearish stance towards VRTU. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately VRTU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VRTU investors were disappointed as the stock returned -17% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
