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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was TechnipFMC plc (NYSE:FTI).
TechnipFMC plc (NYSE:FTI) investors should pay attention to a decrease in hedge fund sentiment of late. FTI was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 36 hedge funds in our database with FTI holdings at the end of the previous quarter. Our calculations also showed that FTI 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).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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.
Alexander Roepers of Atlantic Investment Management
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. Now let’s take a glance at the recent hedge fund action surrounding TechnipFMC plc (NYSE:FTI).
What have hedge funds been doing with TechnipFMC plc (NYSE:FTI)?
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FTI over the last 18 quarters. 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, Pzena Investment Management held the most valuable stake in TechnipFMC plc (NYSE:FTI), which was worth $240.6 million at the end of the third quarter. On the second spot was Platinum Asset Management which amassed $185.8 million worth of shares. Antipodes Partners, Millennium Management, and D E Shaw 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 Antipodes Partners allocated the biggest weight to TechnipFMC plc (NYSE:FTI), around 5.1% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 4.22 percent of its 13F equity portfolio to FTI.
Because TechnipFMC plc (NYSE:FTI) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Todd J. Kantor’s Encompass Capital Advisors cut the biggest position of the 750 funds monitored by Insider Monkey, valued at an estimated $25 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund said goodbye to about $21.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TechnipFMC plc (NYSE:FTI) but similarly valued. We will take a look at Cognex Corporation (NASDAQ:CGNX), AGNC Investment Corp. (NASDAQ:AGNC), Zillow Group Inc (NASDAQ:Z), and Targa Resources Corp (NYSE:TRGP). All of these stocks’ market caps are closest to FTI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CGNX | 24 | 211987 | 4 |
| AGNC | 21 | 147216 | 3 |
| Z | 37 | 1682527 | -5 |
| TRGP | 27 | 346879 | 9 |
| Average | 27.25 | 597152 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $863 million in FTI’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 21 bullish hedge fund positions. TechnipFMC plc (NYSE:FTI) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately FTI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FTI were disappointed as the stock returned -73.3% during the same time period 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.
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.
