“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Fortis Inc. (NYSE:FTS) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that FTS isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We’re going to take a gander at the fresh hedge fund action encompassing Fortis Inc. (NYSE:FTS).
How have hedgies been trading Fortis Inc. (NYSE:FTS)?
At Q1’s end, a total of 13 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 FTS over the last 15 quarters. So, let’s find out 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 Fortis Inc. (NYSE:FTS), which was worth $78.8 million at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $71.3 million worth of shares. Moreover, GLG Partners, AQR Capital Management, and D E Shaw were also bullish on Fortis Inc. (NYSE:FTS), allocating a large percentage of their portfolios to this stock.
Seeing as Fortis Inc. (NYSE:FTS) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers that decided to sell off their entire stakes in the third quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $60.1 million in stock. Ric Dillon’s fund, Diamond Hill Capital, also dropped its stock, about $15.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fortis Inc. (NYSE:FTS) but similarly valued. We will take a look at Lennar Corporation (NYSE:LEN), KeyCorp (NYSE:KEY), SK Telecom Co., Ltd. (NYSE:SKM), and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). This group of stocks’ market valuations are closest to FTS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEN | 61 | 2310446 | -1 |
| KEY | 32 | 496942 | -1 |
| SKM | 6 | 73101 | 0 |
| BMRN | 41 | 1908601 | 4 |
| Average | 35 | 1197273 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1197 million. That figure was $231 million in FTS’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 6 bullish hedge fund positions. Fortis Inc. (NYSE:FTS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on FTS as the stock returned 8.2% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
