Here is What Hedge Funds Think About Federated Hermes, Inc. (FHI)

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Federated Hermes, Inc. (NYSE:FHI).

Federated Hermes, Inc. (NYSE:FHI) was in 25 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 33. FHI has seen a decrease in support from the world’s most elite money managers in recent months. There were 27 hedge funds in our database with FHI holdings at the end of March. Our calculations also showed that FHI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 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.

Matthew Lindenbaum of Basswood Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a peek at the latest hedge fund action regarding Federated Hermes, Inc. (NYSE:FHI).

Do Hedge Funds Think FHI Is A Good Stock To Buy Now?

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FHI over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Federated Hermes, Inc. (NYSE:FHI), which was worth $39.5 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $27 million worth of shares. Basswood Capital, Royce & Associates, and Prospector Partners 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 Hourglass Capital allocated the biggest weight to Federated Hermes, Inc. (NYSE:FHI), around 2.98% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, setting aside 1.95 percent of its 13F equity portfolio to FHI.

Since Federated Hermes, Inc. (NYSE:FHI) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their full holdings by the end of the second quarter. Interestingly, Robert Pohly’s Samlyn Capital dumped the biggest investment of all the hedgies tracked by Insider Monkey, valued at about $17.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $7.6 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Federated Hermes, Inc. (NYSE:FHI) but similarly valued. These stocks are HB Fuller Co (NYSE:FUL), Atkore Inc. (NYSE:ATKR), Medifast, Inc. (NYSE:MED), Dorman Products Inc. (NASDAQ:DORM), Terex Corporation (NYSE:TEX), SAGE Therapeutics Inc (NASDAQ:SAGE), and J&J Snack Foods Corp. (NASDAQ:JJSF). This group of stocks’ market values match FHI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $224 million in FHI’s case. Terex Corporation (NYSE:TEX) is the most popular stock in this table. On the other hand HB Fuller Co (NYSE:FUL) is the least popular one with only 12 bullish hedge fund positions. Federated Hermes, Inc. (NYSE:FHI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FHI is 69.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately FHI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FHI were disappointed as the stock returned -1.5% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.