We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Invesco Ltd. (NYSE:IVZ) a buy here? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets improved by 4 lately. Our calculations also showed that IVZ 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
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. Keeping this in mind we’re going to take a peek at the new hedge fund action surrounding Invesco Ltd. (NYSE:IVZ).
How are hedge funds trading Invesco Ltd. (NYSE:IVZ)?
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 20% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in IVZ a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Invesco Ltd. (NYSE:IVZ), with a stake worth $57.7 million reported as of the end of September. Trailing Citadel Investment Group was Pzena Investment Management, which amassed a stake valued at $44.6 million. Bridgewater Associates, Arrowstreet Capital, and D E Shaw 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 Valueworks LLC allocated the biggest weight to Invesco Ltd. (NYSE:IVZ), around 4.39% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to IVZ.
Consequently, key money managers have jumped into Invesco Ltd. (NYSE:IVZ) headfirst. Bridgewater Associates, managed by Ray Dalio, initiated the most valuable position in Invesco Ltd. (NYSE:IVZ). Bridgewater Associates had $25.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Invesco Ltd. (NYSE:IVZ) but similarly valued. We will take a look at Canopy Growth Corporation (NYSE:CGC), Ares Capital Corporation (NASDAQ:ARCC), Coty Inc (NYSE:COTY), and Masimo Corporation (NASDAQ:MASI). This group of stocks’ market values resemble IVZ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CGC | 8 | 23222 | 4 |
| ARCC | 21 | 225163 | -2 |
| COTY | 22 | 138577 | 3 |
| MASI | 27 | 200916 | -1 |
| Average | 19.5 | 146970 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $198 million in IVZ’s case. Masimo Corporation (NASDAQ:MASI) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 8 bullish hedge fund positions. Invesco Ltd. (NYSE:IVZ) 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 IVZ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IVZ were disappointed as the stock returned 14.9% 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.
