Here is What Hedge Funds Think About Financial Engines Inc (FNGN)

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Is Financial Engines Inc (NASDAQ:FNGN) the right investment to pursue these days? The best stock pickers seem to be in an optimistic mood, judging by the fact that the number of long hedge fund investments went up by two during the third quarter. In this way, there were 13 hedge funds in our database with FNGN holdings at the end of September. At the end of this article we will also compare FNGN to other stocks including Pretium Resources Inc (NYSE:PVG), DiamondRock Hospitality Company (NYSE:DRH), and KapStone Paper and Packaging Corp. (NYSE:KS) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Keeping this in mind, let’s take a gander at the recent action surrounding Financial Engines Inc (NASDAQ:FNGN).

How are hedge funds trading Financial Engines Inc (NASDAQ:FNGN)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in Financial Engines Inc (NASDAQ:FNGN), up by 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FNGN over the last 5 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, David E. Shaw’s D E Shaw has the most valuable position in Financial Engines Inc (NASDAQ:FNGN), worth close to $13.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Jim Simons’ Renaissance Technologies, which holds a $12.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions contain Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates, and Matthew A. Weatherbie’s Weatherbie Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Consequently, some big names were leading the bulls’ herd. Stevens Capital Management, led by Matthew Tewksbury, established the largest position in Financial Engines Inc (NASDAQ:FNGN). Stevens Capital Management had $0.4 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a position during the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Financial Engines Inc (NASDAQ:FNGN) but similarly valued. These stocks are Pretium Resources Inc (NYSE:PVG), DiamondRock Hospitality Company (NYSE:DRH), KapStone Paper and Packaging Corp. (NYSE:KS), and Applied Industrial Technologies (NYSE:AIT). This group of stocks’ market values resemble FNGN’s market value.

As you can see these stocks had an average of 14 investors with bullish positions and the average amount invested in these stocks was $106 million, versus $49 million in FNGN’s case. KapStone Paper and Packaging Corp. (NYSE:KS) is the most popular stock in this table. On the other hand Pretium Resources Inc (NYSE:PVG) is the least popular one with only 12 bullish hedge fund positions. Financial Engines Inc (NASDAQ:FNGN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KapStone Paper and Packaging Corp. (NYSE:KS) might be a better candidate to consider taking a long position in.

Disclosure: none