How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fortinet Inc (NASDAQ:FTNT).
Fortinet Inc (NASDAQ:FTNT) was in 23 hedge funds’ portfolios at the end of March. The all time high for this statistic is 44. FTNT has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 32 hedge funds in our database with FTNT positions at the end of the fourth quarter. Our calculations also showed that FTNT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. With all of this in mind let’s view the key hedge fund action encompassing Fortinet Inc (NASDAQ:FTNT).
Do Hedge Funds Think FTNT Is A Good Stock To Buy Now?
At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FTNT over the last 23 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Fortinet Inc (NASDAQ:FTNT), which was worth $447.2 million at the end of the fourth quarter. On the second spot was Fundsmith LLP which amassed $137.9 million worth of shares. Two Sigma Advisors, Park West Asset 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 Park West Asset Management allocated the biggest weight to Fortinet Inc (NASDAQ:FTNT), around 2.13% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, setting aside 1.99 percent of its 13F equity portfolio to FTNT.
Since Fortinet Inc (NASDAQ:FTNT) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedge funds who sold off their positions entirely heading into Q2. Intriguingly, Ryan Caldwell’s Chiron Investment Management dropped the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $10.3 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dumped its stock, about $10.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds heading into Q2.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fortinet Inc (NASDAQ:FTNT) but similarly valued. We will take a look at Welltower Inc. (NYSE:WELL), Eversource Energy (NYSE:ES), Sun Life Financial Inc. (NYSE:SLF), State Street Corporation (NYSE:STT), WEC Energy Group, Inc. (NYSE:WEC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and AMETEK, Inc. (NYSE:AME). This group of stocks’ market values are closest to FTNT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WELL | 21 | 326506 | -5 |
| ES | 24 | 421208 | 0 |
| SLF | 17 | 139250 | -2 |
| STT | 32 | 866316 | 1 |
| WEC | 17 | 184448 | -8 |
| WLTW | 66 | 5189453 | 8 |
| AME | 32 | 909796 | 1 |
| Average | 29.9 | 1148140 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $1148 million. That figure was $906 million in FTNT’s case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 17 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FTNT is 17.8. 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. 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on FTNT as the stock returned 40.1% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.
Follow Fortinet Inc. (NASDAQ:FTNT)
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Disclosure: None. This article was originally published at Insider Monkey.
