Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Comfort Systems USA, Inc. (NYSE:FIX).
Comfort Systems USA, Inc. (NYSE:FIX) was in 21 hedge funds’ portfolios at the end of September. FIX shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 23 hedge funds in our database with FIX holdings at the end of the previous quarter. Our calculations also showed that FIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Chuck Royce of Royce & Associates
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. We’re going to analyze the latest hedge fund action encompassing Comfort Systems USA, Inc. (NYSE:FIX).
What does smart money think about Comfort Systems USA, Inc. (NYSE:FIX)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FIX over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, ACK Asset Management held the most valuable stake in Comfort Systems USA, Inc. (NYSE:FIX), which was worth $20.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $15.7 million worth of shares. Citadel Investment Group, Royce & Associates, and Ancora Advisors 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 ACK Asset Management allocated the biggest weight to Comfort Systems USA, Inc. (NYSE:FIX), around 5.77% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, designating 2.3 percent of its 13F equity portfolio to FIX.
Due to the fact that Comfort Systems USA, Inc. (NYSE:FIX) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds who sold off their positions entirely in the third quarter. At the top of the heap, Renaissance Technologies dropped the largest stake of the 750 funds monitored by Insider Monkey, worth close to $6.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $4.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Comfort Systems USA, Inc. (NYSE:FIX) but similarly valued. We will take a look at InterDigital, Inc. (NASDAQ:IDCC), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), Moelis & Company (NYSE:MC), and Matson, Inc. (NYSE:MATX). This group of stocks’ market valuations are similar to FIX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IDCC | 23 | 224163 | 7 |
| NTB | 15 | 114742 | 2 |
| MC | 16 | 63550 | 3 |
| MATX | 10 | 5024 | 2 |
| Average | 16 | 101870 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $124 million in FIX’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand Matson, Inc. (NYSE:MATX) is the least popular one with only 10 bullish hedge fund positions. Comfort Systems USA, Inc. (NYSE:FIX) is not the most popular stock in this group but hedge fund interest is still above average. 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 FIX as the stock returned 15.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
