We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Foundation Building Materials, Inc. (NYSE:FBM).
Is Foundation Building Materials, Inc. (NYSE:FBM) a marvelous stock to buy now? Money managers are getting more optimistic. The number of bullish hedge fund bets advanced by 14 lately. Our calculations also showed that FBM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FBM was in 24 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with FBM positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Israel Englander of Millennium Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the key hedge fund action surrounding Foundation Building Materials, Inc. (NYSE:FBM).
How have hedgies been trading Foundation Building Materials, Inc. (NYSE:FBM)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 140% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in FBM a year ago. So, let’s examine 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 Foundation Building Materials, Inc. (NYSE:FBM), which was worth $16.9 million at the end of the third quarter. On the second spot was Islet Management which amassed $10.2 million worth of shares. Arrowstreet Capital, D E Shaw, and Millennium 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 Islet Management allocated the biggest weight to Foundation Building Materials, Inc. (NYSE:FBM), around 1.27% of its portfolio. Scoggin is also relatively very bullish on the stock, designating 0.73 percent of its 13F equity portfolio to FBM.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Islet Management, managed by Joseph Samuels, established the most outsized position in Foundation Building Materials, Inc. (NYSE:FBM). Islet Management had $10.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $5.8 million investment in the stock during the quarter. The following funds were also among the new FBM investors: Paul Marshall and Ian Wace’s Marshall Wace, Curtis Schenker and Craig Effron’s Scoggin, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Foundation Building Materials, Inc. (NYSE:FBM). These stocks are Plug Power, Inc. (NASDAQ:PLUG), Barrett Business Services, Inc. (NASDAQ:BBSI), Houghton Mifflin Harcourt Company (NASDAQ:HMHC), and Global Partners LP (NYSE:GLP). This group of stocks’ market caps match FBM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLUG | 9 | 44087 | 1 |
| BBSI | 11 | 76189 | 0 |
| HMHC | 13 | 191389 | -1 |
| GLP | 2 | 461 | -1 |
| Average | 8.75 | 78032 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $75 million in FBM’s case. Houghton Mifflin Harcourt Company (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Foundation Building Materials, Inc. (NYSE:FBM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FBM as the stock returned 32% during the first two months of Q4 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.
