Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
ForeScout Technologies, Inc. (NASDAQ:FSCT) investors should be aware of an increase in enthusiasm from smart money recently. FSCT was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with FSCT holdings at the end of the previous quarter. Our calculations also showed that FSCT isn’t among the 30 most popular stocks among hedge funds.
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’ 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 market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We’re going to go over the latest hedge fund action surrounding ForeScout Technologies, Inc. (NASDAQ:FSCT).
What does the smart money think about ForeScout Technologies, Inc. (NASDAQ:FSCT)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FSCT over the last 14 quarters. 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, Eminence Capital held the most valuable stake in ForeScout Technologies, Inc. (NASDAQ:FSCT), which was worth $34.6 million at the end of the fourth quarter. On the second spot was Point72 Asset Management which amassed $34 million worth of shares. Moreover, Jericho Capital Asset Management, North Run Capital, and Renaissance Technologies were also bullish on ForeScout Technologies, Inc. (NASDAQ:FSCT), 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. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in ForeScout Technologies, Inc. (NASDAQ:FSCT). Point72 Asset Management had $34 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $5.8 million position during the quarter. The following funds were also among the new FSCT investors: Brian Ashford-Russell and Tim Woolley’s Polar Capital, Bruce Garelick’s Garelick Capital Partners, and Rishi Bajaj, Toby Symonds, and Steve Tesoriere’s Altai Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ForeScout Technologies, Inc. (NASDAQ:FSCT) but similarly valued. We will take a look at Sandy Spring Bancorp Inc. (NASDAQ:SASR), Brookline Bancorp, Inc. (NASDAQ:BRKL), Arco Platform Limited (NASDAQ:ARCE), and TIER REIT, Inc. (NYSE:TIER). All of these stocks’ market caps are similar to FSCT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SASR | 13 | 65753 | 1 |
| BRKL | 10 | 49831 | 4 |
| ARCE | 10 | 31773 | -12 |
| TIER | 7 | 71133 | -2 |
| Average | 10 | 54623 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $152 million in FSCT’s case. Sandy Spring Bancorp Inc. (NASDAQ:SASR) is the most popular stock in this table. On the other hand TIER REIT, Inc. (NYSE:TIER) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks ForeScout Technologies, Inc. (NASDAQ:FSCT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on FSCT as the stock returned 48.9% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
