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 II-VI, Inc. (NASDAQ:IIVI) and compare its performance to hedge funds’ consensus picks in 2019.
II-VI, Inc. (NASDAQ:IIVI) was in 31 hedge funds’ portfolios at the end of September. IIVI investors should be aware of an increase in enthusiasm from smart money of late. There were 21 hedge funds in our database with IIVI holdings at the end of the previous quarter. Our calculations also showed that IIVI 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind let’s review the new hedge fund action encompassing II-VI, Inc. (NASDAQ:IIVI).
What have hedge funds been doing with II-VI, Inc. (NASDAQ:IIVI)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 48% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in IIVI a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Alyeska Investment Group held the most valuable stake in II-VI, Inc. (NASDAQ:IIVI), which was worth $32.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $30 million worth of shares. Alpine Associates, Arrowstreet Capital, and Royce & Associates 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 Cavalry Asset Management allocated the biggest weight to II-VI, Inc. (NASDAQ:IIVI), around 2.2% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, designating 1.53 percent of its 13F equity portfolio to IIVI.
With a general bullishness amongst the heavyweights, specific money managers have jumped into II-VI, Inc. (NASDAQ:IIVI) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the most valuable position in II-VI, Inc. (NASDAQ:IIVI). Alyeska Investment Group had $32.1 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also made a $20.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Dmitry Balyasny’s Balyasny Asset Management, and Renaissance Technologies.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as II-VI, Inc. (NASDAQ:IIVI) but similarly valued. These stocks are Embraer SA (NYSE:ERJ), UMB Financial Corporation (NASDAQ:UMBF), Sinopec Shanghai Petrochemical Co. (NYSE:SHI), and Home Bancshares Inc (NASDAQ:HOMB). This group of stocks’ market caps match IIVI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERJ | 13 | 76731 | 6 |
| UMBF | 14 | 77629 | -2 |
| SHI | 3 | 13063 | -2 |
| HOMB | 11 | 12529 | -2 |
| Average | 10.25 | 44988 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $200 million in IIVI’s case. UMB Financial Corporation (NASDAQ:UMBF) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Co. (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks II-VI, Inc. (NASDAQ:IIVI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately IIVI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IIVI were disappointed as the stock returned 3.4% so far in 2019 (through 12/23) 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 65 percent of these stocks already outperformed the market in 2019.
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.
