We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Amdocs Limited (NASDAQ:DOX) and determine whether hedge funds skillfully traded this stock.
Is Amdocs Limited (NASDAQ:DOX) a superb investment today? The best stock pickers were in an optimistic mood. The number of bullish hedge fund bets improved by 4 lately. Amdocs Limited (NASDAQ:DOX) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DOX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Rogers Ariel Investments
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a peek at the fresh hedge fund action encompassing Amdocs Limited (NASDAQ:DOX).
Hedge fund activity in Amdocs Limited (NASDAQ:DOX)
At second quarter's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the first quarter of 2020. On the other hand, there were a total of 25 hedge funds with a bullish position in DOX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the largest position in Amdocs Limited (NASDAQ:DOX), worth close to $133.2 million, amounting to 0.2% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $74.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish encompass John W. Rogers's Ariel Investments, Anand Parekh's Alyeska Investment Group and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Intrepid Capital Management allocated the biggest weight to Amdocs Limited (NASDAQ:DOX), around 1.41% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 0.93 percent of its 13F equity portfolio to DOX.
As aggregate interest increased, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Amdocs Limited (NASDAQ:DOX). Alyeska Investment Group had $45.6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $13.2 million position during the quarter. The other funds with new positions in the stock are Seth Cogswell's Running Oak Capital, Qing Li's Sciencast Management, and Donald Sussman's Paloma Partners.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Amdocs Limited (NASDAQ:DOX) but similarly valued. These stocks are ON Semiconductor Corporation (NASDAQ:ON), InterContinental Hotels Group PLC (NYSE:IHG), Pegasystems Inc. (NASDAQ:PEGA), American Homes 4 Rent (NYSE:AMH), 58.com Inc (NYSE:WUBA), Whirlpool Corporation (NYSE:WHR), and Wynn Resorts, Limited (NASDAQ:WYNN). All of these stocks' market caps match DOX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ON,32,504577,3 IHG,5,5206,1 PEGA,28,1451413,-5 AMH,23,232272,2 WUBA,34,1203516,13 WHR,26,800208,1 WYNN,45,587255,5 Average,27.6,683492,2.9 [/table]
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $683 million. That figure was $407 million in DOX's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 5 bullish hedge fund positions. Amdocs Limited (NASDAQ:DOX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DOX is 66.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately DOX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DOX investors were disappointed as the stock returned -5.5% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
