Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Fair Isaac Corporation (NYSE:FICO) the right investment to pursue these days? Hedge funds are getting less optimistic. The number of bullish hedge fund positions decreased by 1 recently. Our calculations also showed that FICO isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a peek at the recent hedge fund action regarding Fair Isaac Corporation (NYSE:FICO).
How are hedge funds trading Fair Isaac Corporation (NYSE:FICO)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FICO over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Fair Isaac Corporation (NYSE:FICO), which was worth $68.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $63.4 million worth of shares. Moreover, Ariel Investments, Sandler Capital Management, and GLG Partners were also bullish on Fair Isaac Corporation (NYSE:FICO), allocating a large percentage of their portfolios to this stock.
Since Fair Isaac Corporation (NYSE:FICO) has experienced falling interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings heading into Q3. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management dropped the biggest position of the 700 funds watched by Insider Monkey, valued at an estimated $1.9 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $1.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fair Isaac Corporation (NYSE:FICO) but similarly valued. These stocks are Watsco Inc (NYSE:WSO), Randgold Resources Ltd. (NASDAQ:GOLD), Hanesbrands Inc. (NYSE:HBI), and Amneal Pharmaceuticals, Inc. (NYSE:AMRX). This group of stocks’ market caps are similar to FICO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSO | 17 | 163129 | 4 |
| GOLD | 18 | 274444 | 7 |
| HBI | 18 | 550463 | -7 |
| AMRX | 11 | 177982 | -2 |
| Average | 16 | 291505 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $344 million in FICO’s case. Randgold Resources Ltd. (NASDAQ:GOLD) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Fair Isaac Corporation (NYSE:FICO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
