Did Hedge Funds Make The Right Call On FLIR Systems, Inc. (FLIR) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards FLIR Systems, Inc. (NASDAQ:FLIR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

FLIR Systems, Inc. (NASDAQ:FLIR) investors should be aware of an increase in enthusiasm from smart money lately. FLIR was in 34 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with FLIR holdings at the end of the previous quarter. Our calculations also showed that FLIR 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Charles Davidson of Wexford Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the recent hedge fund action surrounding FLIR Systems, Inc. (NASDAQ:FLIR).

What does smart money think about FLIR Systems, Inc. (NASDAQ:FLIR)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in FLIR over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in FLIR Systems, Inc. (NASDAQ:FLIR), which was worth $37.4 million at the end of the third quarter. On the second spot was Polar Capital which amassed $33.7 million worth of shares. D E Shaw, Millennium Management, and Adage Capital 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 Prospector Partners allocated the biggest weight to FLIR Systems, Inc. (NASDAQ:FLIR), around 1.48% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, dishing out 1.43 percent of its 13F equity portfolio to FLIR.

Now, specific money managers have jumped into FLIR Systems, Inc. (NASDAQ:FLIR) headfirst. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the most valuable position in FLIR Systems, Inc. (NASDAQ:FLIR). Polar Capital had $33.7 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $12.2 million investment in the stock during the quarter. The other funds with brand new FLIR positions are Renaissance Technologies, Greg Eisner’s Engineers Gate Manager, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s go over hedge fund activity in other stocks similar to FLIR Systems, Inc. (NASDAQ:FLIR). We will take a look at NewMarket Corporation (NYSE:NEU), TFS Financial Corporation (NASDAQ:TFSL), Globus Medical Inc (NYSE:GMED), and Legg Mason, Inc. (NYSE:LM). This group of stocks’ market values are similar to FLIR’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $193 million in FLIR’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. FLIR Systems, Inc. (NASDAQ:FLIR) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on FLIR as the stock returned 27.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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