We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Intercorp Financial Services Inc. (NYSE:IFS).
Intercorp Financial Services Inc. (NYSE:IFS) was in 2 hedge funds’ portfolios at the end of December. IFS investors should pay attention to a decrease in hedge fund sentiment lately. There were 3 hedge funds in our database with IFS positions at the end of the previous quarter. Our calculations also showed that IFS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely 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, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the recent hedge fund action surrounding Intercorp Financial Services Inc. (NYSE:IFS).
Hedge fund activity in Intercorp Financial Services Inc. (NYSE:IFS)
At Q4’s end, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in IFS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Intercorp Financial Services Inc. (NYSE:IFS) was held by NWI Management, which reported holding $41.8 million worth of stock at the end of September. It was followed by Millennium Management with a $4.7 million position.
Judging by the fact that Intercorp Financial Services Inc. (NYSE:IFS) has faced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of funds that elected to cut their entire stakes heading into Q4. Intriguingly, David Halpert’s Prince Street Capital Management sold off the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $2.6 million in stock, and Rob Citrone’s Discovery Capital Management was right behind this move, as the fund dumped about $1.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Intercorp Financial Services Inc. (NYSE:IFS) but similarly valued. These stocks are J2 Global Inc (NASDAQ:JCOM), Copa Holdings, S.A. (NYSE:CPA), Armstrong World Industries, Inc. (NYSE:AWI), and YPF Sociedad Anonima (NYSE:YPF). This group of stocks’ market values match IFS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JCOM | 23 | 302223 | 4 |
| CPA | 22 | 402542 | 1 |
| AWI | 24 | 550330 | -6 |
| YPF | 15 | 92848 | -5 |
| Average | 21 | 336986 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $337 million. That figure was $47 million in IFS’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Intercorp Financial Services Inc. (NYSE:IFS) is even less popular than YPF. Hedge funds dodged a bullet by taking a bearish stance towards IFS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately IFS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); IFS investors were disappointed as the stock returned -42.4% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
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.
