“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Virtusa Corporation (NASDAQ:VRTU) and see how it was affected.
Virtusa Corporation (NASDAQ:VRTU) investors should be aware of an increase in support from the world’s most elite money managers recently. Our calculations also showed that VRTU isn’t among the 30 most popular stocks among hedge funds (see 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’ 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 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 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.
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 go over the fresh hedge fund action surrounding Virtusa Corporation (NASDAQ:VRTU).
What does smart money think about Virtusa Corporation (NASDAQ:VRTU)?
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in VRTU a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Virtusa Corporation (NASDAQ:VRTU), with a stake worth $20 million reported as of the end of March. Trailing Renaissance Technologies was Portolan Capital Management, which amassed a stake valued at $12.2 million. Alyeska Investment Group, Driehaus Capital, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key hedge funds were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, assembled the largest position in Virtusa Corporation (NASDAQ:VRTU). Alyeska Investment Group had $7.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $1.6 million investment in the stock during the quarter. The only other fund with a brand new VRTU position is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Virtusa Corporation (NASDAQ:VRTU) but similarly valued. These stocks are Talos Energy, Inc. (NYSE:TALO), CNX Resources Corporation (NYSE:CNX), Fate Therapeutics Inc (NASDAQ:FATE), and Eventbrite, Inc. (NYSE:EB). All of these stocks’ market caps are closest to VRTU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TALO | 14 | 66272 | -3 |
| CNX | 21 | 500604 | 0 |
| FATE | 18 | 469864 | 0 |
| EB | 21 | 310273 | 5 |
| Average | 18.5 | 336753 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $337 million. That figure was $57 million in VRTU’s case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand Talos Energy, Inc. (NYSE:TALO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Virtusa Corporation (NASDAQ:VRTU) is even less popular than TALO. Hedge funds dodged a bullet by taking a bearish stance towards VRTU. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VRTU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VRTU investors were disappointed as the stock returned -18.9% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
