It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Falcon Minerals Corporation (NASDAQ:FLMN).
Falcon Minerals Corporation (NASDAQ:FLMN) was in 22 hedge funds’ portfolios at the end of June. FLMN investors should be aware of an increase in support from the world’s most elite money managers in recent months. There were 17 hedge funds in our database with FLMN holdings at the end of the previous quarter. Our calculations also showed that FLMN isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
George Soros
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the recent hedge fund action encompassing Falcon Minerals Corporation (NASDAQ:FLMN).
How are hedge funds trading Falcon Minerals Corporation (NASDAQ:FLMN)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in FLMN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Samlyn Capital held the most valuable stake in Falcon Minerals Corporation (NASDAQ:FLMN), which was worth $35.9 million at the end of the second quarter. On the second spot was Nantahala Capital Management which amassed $17 million worth of shares. Moreover, MSDC Management, Angelo Gordon & Co, and Soros Fund Management were also bullish on Falcon Minerals Corporation (NASDAQ:FLMN), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Omega Advisors, managed by Leon Cooperman, assembled the largest position in Falcon Minerals Corporation (NASDAQ:FLMN). Omega Advisors had $3.4 million invested in the company at the end of the quarter. Steve Pattyn’s Yaupon Capital also initiated a $0.9 million position during the quarter. The following funds were also among the new FLMN investors: David Cohen and Harold Levy’s Iridian Asset Management, Richard Driehaus’s Driehaus Capital, and Thomas Bailard’s Bailard Inc.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Falcon Minerals Corporation (NASDAQ:FLMN) but similarly valued. We will take a look at Diebold Nixdorf Incorporated (NYSE:DBD), Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), William Lyon Homes (NYSE:WLH), and Zealand Pharma A/S (NASDAQ:ZEAL). This group of stocks’ market caps match FLMN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DBD | 15 | 128905 | -3 |
| SCHN | 12 | 28629 | -2 |
| WLH | 24 | 151171 | 1 |
| ZEAL | 2 | 21766 | 0 |
| Average | 13.25 | 82618 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $119 million in FLMN’s case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 2 bullish hedge fund positions. Falcon Minerals Corporation (NASDAQ:FLMN) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FLMN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FLMN were disappointed as the stock returned -29.9% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
