Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Fortune Brands Home & Security Inc (NYSE:FBHS).
Fortune Brands Home & Security Inc (NYSE:FBHS) was in 28 hedge funds’ portfolios at the end of June. The all time high for this statistic is 37. FBHS has seen an increase in enthusiasm from smart money of late. There were 23 hedge funds in our database with FBHS positions at the end of the first quarter. Our calculations also showed that FBHS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Mario Gabelli of GAMCO Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to view the new hedge fund action surrounding Fortune Brands Home & Security Inc (NYSE:FBHS).
Do Hedge Funds Think FBHS Is A Good Stock To Buy Now?
At second quarter’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in FBHS a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Holocene Advisors was the largest shareholder of Fortune Brands Home & Security Inc (NYSE:FBHS), with a stake worth $99.8 million reported as of the end of June. Trailing Holocene Advisors was Giverny Capital, which amassed a stake valued at $54.4 million. AQR Capital Management, Millennium Management, and GAMCO Investors 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 Giverny Capital allocated the biggest weight to Fortune Brands Home & Security Inc (NYSE:FBHS), around 3.31% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to FBHS.
Consequently, key money managers have jumped into Fortune Brands Home & Security Inc (NYSE:FBHS) headfirst. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Fortune Brands Home & Security Inc (NYSE:FBHS). Point72 Asset Management had $21 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $12.3 million investment in the stock during the quarter. The other funds with brand new FBHS positions are Ken Griffin’s Citadel Investment Group, Donald Sussman’s Paloma Partners, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fortune Brands Home & Security Inc (NYSE:FBHS) but similarly valued. These stocks are Crown Holdings, Inc. (NYSE:CCK), IAC/InterActiveCorp (NASDAQ:IAC), Tuya Inc. (NYSE:TUYA), RLX Technology Inc. (NYSE:RLX), CureVac N.V. (NASDAQ:CVAC), Whirlpool Corporation (NYSE:WHR), and American Airlines Group Inc (NASDAQ:AAL). All of these stocks’ market caps match FBHS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCK | 53 | 1981122 | -7 |
| IAC | 50 | 1226152 | -13 |
| TUYA | 8 | 224184 | -7 |
| RLX | 12 | 192836 | -11 |
| CVAC | 12 | 24977 | 3 |
| WHR | 32 | 1175762 | 4 |
| AAL | 25 | 620239 | -7 |
| Average | 27.4 | 777896 | -5.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $778 million. That figure was $412 million in FBHS’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Tuya Inc. (NYSE:TUYA) is the least popular one with only 8 bullish hedge fund positions. Fortune Brands Home & Security Inc (NYSE:FBHS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FBHS is 54.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately FBHS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FBHS were disappointed as the stock returned -4.6% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Fortune Brands Innovations Inc. (NYSE:FBIN)
Follow Fortune Brands Innovations Inc. (NYSE:FBIN)
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Disclosure: None. This article was originally published at Insider Monkey.
