Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Interpublic Group of Companies, Inc. (NYSE:IPG) and compare its performance to hedge funds’ consensus picks in 2019.
The Interpublic Group of Companies, Inc. (NYSE:IPG) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that IPG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s take a gander at the fresh hedge fund action encompassing The Interpublic Group of Companies, Inc. (NYSE:IPG).
How are hedge funds trading The Interpublic Group of Companies, Inc. (NYSE:IPG)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in IPG a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of The Interpublic Group of Companies, Inc. (NYSE:IPG), with a stake worth $356.5 million reported as of the end of September. Trailing Pzena Investment Management was Ariel Investments, which amassed a stake valued at $195.7 million. AQR Capital Management, GAMCO Investors, and Citadel Investment Group 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 Ariel Investments allocated the biggest weight to The Interpublic Group of Companies, Inc. (NYSE:IPG), around 2.61% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, setting aside 1.94 percent of its 13F equity portfolio to IPG.
Judging by the fact that The Interpublic Group of Companies, Inc. (NYSE:IPG) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers who were dropping their entire stakes by the end of the third quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $10.5 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $6.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 8 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to The Interpublic Group of Companies, Inc. (NYSE:IPG). These stocks are Dropbox, Inc. (NASDAQ:DBX), AEGON N.V. (NYSE:AEG), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), and Neurocrine Biosciences, Inc. (NASDAQ:NBIX). This group of stocks’ market values resemble IPG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DBX | 38 | 977930 | -5 |
| AEG | 6 | 25903 | -3 |
| AVAL | 7 | 17609 | 0 |
| NBIX | 42 | 1101616 | 8 |
| Average | 23.25 | 530765 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $531 million. That figure was $755 million in IPG’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand AEGON N.V. (NYSE:AEG) is the least popular one with only 6 bullish hedge fund positions. The Interpublic Group of Companies, Inc. (NYSE:IPG) 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. Unfortunately IPG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IPG were disappointed as the stock returned 17% in 2019 and trailed 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.
