We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Virtu Financial Inc (NASDAQ:VIRT).
Virtu Financial Inc (NASDAQ:VIRT) investors should be aware of a decrease in enthusiasm from smart money of late. VIRT was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with VIRT holdings at the end of the previous quarter. Our calculations also showed that VIRT isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the key hedge fund action encompassing Virtu Financial Inc (NASDAQ:VIRT).
How have hedgies been trading Virtu Financial Inc (NASDAQ:VIRT)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VIRT over the last 16 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Virtu Financial Inc (NASDAQ:VIRT), worth close to $37.1 million, accounting for 0.3% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $20.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Israel Englander’s Millennium Management, Renaissance Technologies and Usman Waheed’s Strycker View Capital.
Seeing as Virtu Financial Inc (NASDAQ:VIRT) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that elected to cut their positions entirely heading into Q3. Interestingly, Noam Gottesman’s GLG Partners sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $2.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Virtu Financial Inc (NASDAQ:VIRT) but similarly valued. We will take a look at Rexford Industrial Realty Inc (NYSE:REXR), Spire Inc. (NYSE:SR), Sinopec Shanghai Petrochemical Co. (NYSE:SHI), and Aaron’s, Inc. (NYSE:AAN). This group of stocks’ market valuations are similar to VIRT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REXR | 17 | 201790 | -4 |
| SR | 12 | 95947 | -3 |
| SHI | 5 | 13017 | 0 |
| AAN | 22 | 337253 | 2 |
| Average | 14 | 162002 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $121 million in VIRT’s case. Aaron’s, Inc. (NYSE:AAN) 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 5 bullish hedge fund positions. Virtu Financial Inc (NASDAQ:VIRT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VIRT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VIRT were disappointed as the stock returned -23.9% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
