Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Comfort Systems USA, Inc. (NYSE:FIX).
Comfort Systems USA, Inc. (NYSE:FIX) has experienced a decrease in enthusiasm from smart money in recent months. FIX was in 23 hedge funds’ portfolios at the end of the second quarter of 2019. There were 28 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 (see the video below).
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 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding Comfort Systems USA, Inc. (NYSE:FIX).
How are hedge funds trading Comfort Systems USA, Inc. (NYSE:FIX)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in FIX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, GLG Partners held the most valuable stake in Comfort Systems USA, Inc. (NYSE:FIX), which was worth $13.3 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $10.7 million worth of shares. Moreover, Impax Asset Management, Citadel Investment Group, and D E Shaw were also bullish on Comfort Systems USA, Inc. (NYSE:FIX), allocating a large percentage of their portfolios to this stock.
Seeing as Comfort Systems USA, Inc. (NYSE:FIX) has experienced a decline in interest from the smart money, logic holds that there exists a select few funds who sold off their entire stakes in the second quarter. Intriguingly, Mariko Gordon’s Daruma Asset Management dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $27.3 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund said goodbye to about $4.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 5 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks similar to Comfort Systems USA, Inc. (NYSE:FIX). These stocks are Genworth Financial Inc (NYSE:GNW), Pretium Resources Inc (NYSE:PVG), Bottomline Technologies (de), Inc. (NASDAQ:EPAY), and First Merchants Corporation (NASDAQ:FRME). This group of stocks’ market caps are closest to FIX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GNW | 22 | 169662 | -2 |
| PVG | 22 | 93797 | 1 |
| EPAY | 16 | 72602 | 1 |
| FRME | 10 | 94703 | -3 |
| Average | 17.5 | 107691 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $102 million in FIX’s case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Comfort Systems USA, Inc. (NYSE:FIX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FIX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FIX were disappointed as the stock returned -13% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
