Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Fortinet Inc (NASDAQ:FTNT) based on that data.
Fortinet Inc (NASDAQ:FTNT) has seen an increase in activity from the world’s largest hedge funds lately. FTNT was in 38 hedge funds’ portfolios at the end of September. There were 34 hedge funds in our database with FTNT holdings at the end of the previous quarter. Our calculations also showed that FTNT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
According to most traders, hedge funds are seen as slow, outdated investment vehicles of the past. While there are more than 8000 funds trading today, We choose to focus on the masters of this group, around 750 funds. It is estimated that this group of investors preside over the majority of all hedge funds’ total asset base, and by following their best investments, Insider Monkey has found a few investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Clifton S. Robbins of Blue Harbour Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a peek at the latest hedge fund action surrounding Fortinet Inc (NASDAQ:FTNT).
How are hedge funds trading Fortinet Inc (NASDAQ:FTNT)?
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in FTNT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Fortinet Inc (NASDAQ:FTNT), with a stake worth $325.8 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $218.8 million. Two Sigma Advisors, Arrowstreet Capital, and Blue Harbour 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 Blue Harbour Group allocated the biggest weight to Fortinet Inc (NASDAQ:FTNT), around 4.76% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, dishing out 2.15 percent of its 13F equity portfolio to FTNT.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Fortinet Inc (NASDAQ:FTNT) headfirst. Blue Harbour Group, managed by Clifton S. Robbins, established the most valuable position in Fortinet Inc (NASDAQ:FTNT). Blue Harbour Group had $81.1 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $6.9 million position during the quarter. The following funds were also among the new FTNT investors: Paul Marshall and Ian Wace’s Marshall Wace, Karim Abbadi and Edward McBride’s Centiva Capital, and Mario Gabelli’s GAMCO Investors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fortinet Inc (NASDAQ:FTNT) but similarly valued. These stocks are Genmab A/S (NASDAQ:GMAB), International Flavors & Fragrances Inc (NYSE:IFF), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), and WellCare Health Plans, Inc. (NYSE:WCG). This group of stocks’ market valuations are closest to FTNT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GMAB | 10 | 136229 | 10 |
| IFF | 19 | 202887 | 1 |
| SSNC | 45 | 1483434 | 4 |
| WCG | 41 | 1791970 | -5 |
| Average | 28.75 | 903630 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $904 million. That figure was $1188 million in FTNT’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 10 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FTNT as the stock returned 53.1% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
