We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in FTI Consulting, Inc. (NYSE:FCN)? The smart money sentiment can provide an answer to this question.
FTI Consulting, Inc. (NYSE:FCN) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of December. 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 Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), Southwest Gas Corporation (NYSE:SWX), and Stifel Financial Corp. (NYSE:SF) to gather more data points. Our calculations also showed that FCN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the latest hedge fund action surrounding FTI Consulting, Inc. (NYSE:FCN).
How are hedge funds trading FTI Consulting, Inc. (NYSE:FCN)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in FCN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in FTI Consulting, Inc. (NYSE:FCN) was held by Greenvale Capital, which reported holding $37.1 million worth of stock at the end of September. It was followed by GLG Partners with a $25.9 million position. Other investors bullish on the company included Shellback Capital, Renaissance Technologies, and Winton Capital Management. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to FTI Consulting, Inc. (NYSE:FCN), around 9.16% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, dishing out 1.96 percent of its 13F equity portfolio to FCN.
Seeing as FTI Consulting, Inc. (NYSE:FCN) has experienced a decline in interest from hedge fund managers, logic holds that there were a few hedge funds that decided to sell off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $6.4 million in stock. Qing Li’s fund, Sciencast Management, also dumped its stock, about $1.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as FTI Consulting, Inc. (NYSE:FCN) but similarly valued. We will take a look at Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), Southwest Gas Corporation (NYSE:SWX), Stifel Financial Corp. (NYSE:SF), and F.N.B. Corp (NYSE:FNB). All of these stocks’ market caps resemble FCN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OLLI | 28 | 170863 | 5 |
| SWX | 23 | 200768 | 1 |
| SF | 15 | 148704 | 1 |
| FNB | 23 | 124299 | 4 |
| Average | 22.25 | 161159 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $164 million in FCN’s case. Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 15 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on FCN as the stock returned 6.4% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
