Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Forterra, Inc. (NASDAQ:FRTA) has seen an increase in hedge fund sentiment in recent months. Our calculations also showed that FRTA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most investors, hedge funds are perceived as worthless, outdated financial tools of yesteryear. While there are over 8000 funds with their doors open at present, We choose to focus on the crème de la crème of this group, around 750 funds. Most estimates calculate that this group of people handle bulk of the hedge fund industry’s total asset base, and by tailing their unrivaled stock picks, Insider Monkey has figured out a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum 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 .
Chuck Royce of Royce & Associates
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 recent hedge fund action surrounding Forterra, Inc. (NASDAQ:FRTA).
How are hedge funds trading Forterra, Inc. (NASDAQ:FRTA)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FRTA over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Electron Capital Partners held the most valuable stake in Forterra, Inc. (NASDAQ:FRTA), which was worth $21.8 million at the end of the third quarter. On the second spot was Brigade Capital which amassed $19.3 million worth of shares. Royce & Associates, Redwood Capital Management, and Water 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 Water Asset Management allocated the biggest weight to Forterra, Inc. (NASDAQ:FRTA), around 4.09% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, dishing out 3.19 percent of its 13F equity portfolio to FRTA.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Lyon Street Capital, managed by Brian C. Freckmann, created the most outsized position in Forterra, Inc. (NASDAQ:FRTA). Lyon Street Capital had $0.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also made a $0.6 million investment in the stock during the quarter. The only other fund with a new position in the stock is Renaissance Technologies.
Let’s check out hedge fund activity in other stocks similar to Forterra, Inc. (NASDAQ:FRTA). We will take a look at Matrix Service Co (NASDAQ:MTRX), Nexgen Energy Ltd. (NYSE:NXE), The Rubicon Project Inc (NYSE:RUBI), and Bonanza Creek Energy Inc (NYSE:BCEI). This group of stocks’ market values resemble FRTA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTRX | 19 | 28483 | 5 |
| NXE | 8 | 20023 | 0 |
| RUBI | 20 | 77237 | 4 |
| BCEI | 21 | 144775 | 6 |
| Average | 17 | 67630 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $73 million in FRTA’s case. Bonanza Creek Energy Inc (NYSE:BCEI) is the most popular stock in this table. On the other hand Nexgen Energy Ltd. (NYSE:NXE) is the least popular one with only 8 bullish hedge fund positions. Forterra, Inc. (NASDAQ:FRTA) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on FRTA as the stock returned 53.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
