Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Vedanta Ltd (NYSE:VEDL).
Vedanta Ltd (NYSE:VEDL) shareholders have witnessed an increase in hedge fund sentiment recently. Our calculations also showed that VEDL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's analyze the key hedge fund action regarding Vedanta Ltd (NYSE:VEDL).
How are hedge funds trading Vedanta Ltd (NYSE:VEDL)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in VEDL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Vedanta Ltd (NYSE:VEDL), with a stake worth $20.6 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $19.2 million. Whitebox Advisors, LMR Partners, and Citadel Investment Group 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 Whitebox Advisors allocated the biggest weight to Vedanta Ltd (NYSE:VEDL), around 0.35% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to VEDL.
As aggregate interest increased, key money managers were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, assembled the most valuable position in Vedanta Ltd (NYSE:VEDL). LMR Partners had $2.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $0.7 million investment in the stock during the quarter. The only other fund with a brand new VEDL position is Israel Englander's Millennium Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Vedanta Ltd (NYSE:VEDL) but similarly valued. We will take a look at Bunge Limited (NYSE:BG), Zayo Group Holdings Inc (NYSE:ZAYO), Alaska Air Group, Inc. (NYSE:ALK), and Pilgrim's Pride Corporation (NASDAQ:PPC). This group of stocks' market valuations resemble VEDL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BG,34,579574,3 ZAYO,50,1997124,-9 ALK,31,486037,9 PPC,24,264319,5 Average,34.75,831764,2 [/table]
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $832 million. That figure was $56 million in VEDL's case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand Pilgrim's Pride Corporation (NASDAQ:PPC) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Vedanta Ltd (NYSE:VEDL) is even less popular than PPC. Hedge funds dodged a bullet by taking a bearish stance towards VEDL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VEDL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VEDL investors were disappointed as the stock returned -7.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
