Did Hedge Funds Make The Right Call On FactSet Research Systems Inc. (FDS) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded FactSet Research Systems Inc. (NYSE:FDS) and determine whether the smart money was really smart about this stock.

FactSet Research Systems Inc. (NYSE:FDS) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. FDS investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 24 hedge funds in our database with FDS positions at the end of the previous quarter. Our calculations also showed that FDS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by 58 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 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.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s go over the latest hedge fund action encompassing FactSet Research Systems Inc. (NYSE:FDS).

How have hedgies been trading FactSet Research Systems Inc. (NYSE:FDS)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FDS over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, GLG Partners held the most valuable stake in FactSet Research Systems Inc. (NYSE:FDS), which was worth $51.3 million at the end of the third quarter. On the second spot was Echo Street Capital Management which amassed $33.3 million worth of shares. Holocene Advisors, Markel Gayner Asset Management, and Balyasny Asset Management 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 Echo Street Capital Management allocated the biggest weight to FactSet Research Systems Inc. (NYSE:FDS), around 0.72% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, dishing out 0.57 percent of its 13F equity portfolio to FDS.

Judging by the fact that FactSet Research Systems Inc. (NYSE:FDS) has witnessed falling interest from the aggregate hedge fund industry, we can see that there is a sect of hedgies that decided to sell off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest investment of the 750 funds followed by Insider Monkey, worth about $20.3 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $9.3 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to FactSet Research Systems Inc. (NYSE:FDS). These stocks are Synchrony Financial (NYSE:SYF), Moderna, Inc. (NASDAQ:MRNA), Tractor Supply Company (NASDAQ:TSCO), and Teva Pharmaceutical Industries Limited (NYSE:TEVA). This group of stocks’ market caps match FDS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $703 million. That figure was $210 million in FDS’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand Moderna, Inc. (NASDAQ:MRNA) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks FactSet Research Systems Inc. (NYSE:FDS) is even less popular than MRNA. Hedge funds clearly dropped the ball on FDS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on FDS as the stock returned 34.4% since the end of March and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.