“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. 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 FireEye Inc (NASDAQ:FEYE) and see how it was affected.
Is FireEye Inc (NASDAQ:FEYE) a buy, sell, or hold? The smart money is turning less bullish. The number of long hedge fund bets shrunk by 1 in recent months. Our calculations also showed that feye isn’t among the 30 most popular stocks among hedge funds. FEYE was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 29 hedge funds in our database with FEYE holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to analyze the key hedge fund action regarding FireEye Inc (NASDAQ:FEYE).
Hedge fund activity in FireEye Inc (NASDAQ:FEYE)
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FEYE over the last 14 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in FireEye Inc (NASDAQ:FEYE) was held by Point72 Asset Management, which reported holding $61.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $52.3 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Renaissance Technologies.
Because FireEye Inc (NASDAQ:FEYE) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Mike Masters’s Masters Capital Management dropped the largest stake of the 700 funds watched by Insider Monkey, comprising close to $17 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also sold off its stock, about $11 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to FireEye Inc (NASDAQ:FEYE). We will take a look at MasTec, Inc. (NYSE:MTZ), F.N.B. Corp (NYSE:FNB), National Health Investors Inc (NYSE:NHI), and Two Harbors Investment Corp (NYSE:TWO). All of these stocks’ market caps are closest to FEYE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTZ | 29 | 425138 | -1 |
| FNB | 20 | 84740 | 8 |
| NHI | 13 | 98672 | 3 |
| TWO | 16 | 44988 | 2 |
| Average | 19.5 | 163385 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $306 million in FEYE’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 13 bullish hedge fund positions. FireEye Inc (NASDAQ:FEYE) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FEYE wasn’t nearly as popular as these 15 stock and hedge funds that were betting on FEYE were disappointed as the stock returned -3.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
