Hedge Funds Aren’t Crazy About FTI Consulting, Inc. (FCN) Anymore: What Has Them Spooked?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in FTI Consulting, Inc. (NYSE:FCN).

FTI Consulting, Inc. (NYSE:FCN) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. 14 hedge funds that we track were long the stock on September 30. There were 18 hedge funds in our database with FCN holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Oasis Petroleum Inc. (NYSE:OAS), Main Street Capital Corporation (NYSE:MAIN), and Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading FTI Consulting, Inc. (NYSE:FCN)?

Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 22% fall from the second quarter of 2016. By comparison, 11 hedge funds held shares or bullish call options in FCN heading into this year, so hedge fund ownership is still up this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Jim Simons’ Renaissance Technologies has the number one position in FTI Consulting, Inc. (NYSE:FCN), worth close to $10.9 million. On Renaissance Technologies’ heels is Marshall Wace LLP, led by Paul Marshall and Ian Wace, which holds a $7.5 million position. Some other professional money managers with similar optimism consist of Martin Whitman’s Third Avenue Management, Cliff Asness’ AQR Capital Management, and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that FTI Consulting, Inc. (NYSE:FCN) has weathered bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of funds that slashed their full holdings heading into Q4. Interestingly, Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners got rid of the largest investment of the 700 funds watched by Insider Monkey, totaling an estimated $3.7 million in stock. David Charney and Sky Wilber’s fund, Foundation Asset Management, also dumped its stock, about $3.2 million worth.

Let’s now review hedge fund activity in other stocks similar to FTI Consulting, Inc. (NYSE:FCN). We will take a look at Oasis Petroleum Inc. (NYSE:OAS), Main Street Capital Corporation (NYSE:MAIN), Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO), and WD-40 Company (NASDAQ:WDFC). This group of stocks’ market valuations are closest to FCN’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $53 million in FCN’s case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. FTI Consulting, Inc. (NYSE:FCN) 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. In this regard OAS might be a better candidate to consider taking a long position in.

Disclosure: None