Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards FirstService Corporation (NASDAQ:FSV) to find out whether it was one of their high conviction long-term ideas.
Is FirstService Corporation (NASDAQ:FSV) a sound investment right now? Hedge funds are getting more bullish. The number of bullish hedge fund bets moved up by 2 recently. Our calculations also showed that FSV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FSV was in 12 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with FSV positions at the end of the previous quarter.
Video: Click the image to 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 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.
Blair Levinsky of Waratah Capital Advisors
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. We’re going to take a glance at the new hedge fund action regarding FirstService Corporation (NASDAQ:FSV).
Hedge fund activity in FirstService Corporation (NASDAQ:FSV)
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in FSV 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in FirstService Corporation (NASDAQ:FSV), worth close to $101.2 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $24.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Leon Lowenstein’s Lionstone Capital Management, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors and John Osterweis’s Osterweis Capital Management. In terms of the portfolio weights assigned to each position Lionstone Capital Management allocated the biggest weight to FirstService Corporation (NASDAQ:FSV), around 7.5% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, setting aside 0.96 percent of its 13F equity portfolio to FSV.
As one would reasonably expect, key money managers have been driving this bullishness. Osterweis Capital Management, managed by John Osterweis, assembled the largest position in FirstService Corporation (NASDAQ:FSV). Osterweis Capital Management had $5.4 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $0.3 million position during the quarter.
Let’s go over hedge fund activity in other stocks similar to FirstService Corporation (NASDAQ:FSV). These stocks are Solaredge Technologies Inc (NASDAQ:SEDG), Cimpress plc (NASDAQ:CMPR), MSC Industrial Direct Co Inc (NYSE:MSM), and Stifel Financial Corp. (NYSE:SF). This group of stocks’ market caps resemble FSV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEDG | 20 | 220192 | -3 |
| CMPR | 9 | 705142 | -3 |
| MSM | 21 | 89777 | 5 |
| SF | 12 | 154909 | -3 |
| Average | 15.5 | 292505 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $164 million in FSV’s case. MSC Industrial Direct Co Inc (NYSE:MSM) is the most popular stock in this table. On the other hand Cimpress plc (NASDAQ:CMPR) is the least popular one with only 9 bullish hedge fund positions. FirstService Corporation (NASDAQ:FSV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FSV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FSV investors were disappointed as the stock returned -6.5% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
