We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Fortis Inc. (NYSE:FTS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Fortis Inc. (NYSE:FTS) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that FTS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
If you’d ask most market participants, hedge funds are seen as slow, old investment vehicles of the past. While there are over 8000 funds trading at present, We choose to focus on the masters of this club, approximately 850 funds. Most estimates calculate that this group of people handle the lion’s share of the smart money’s total capital, and by keeping track of their highest performing equity investments, Insider Monkey has found various investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the new hedge fund action surrounding Fortis Inc. (NYSE:FTS).
Hedge fund activity in Fortis Inc. (NYSE:FTS)
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTS over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of Fortis Inc. (NYSE:FTS), with a stake worth $405.7 million reported as of the end of September. Trailing Zimmer Partners was Renaissance Technologies, which amassed a stake valued at $179.9 million. GQG Partners, GLG Partners, and Marshall Wace LLP 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 Zimmer Partners allocated the biggest weight to Fortis Inc. (NYSE:FTS), around 5.61% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, dishing out 2.8 percent of its 13F equity portfolio to FTS.
Judging by the fact that Fortis Inc. (NYSE:FTS) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies that decided to sell off their positions entirely last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $47.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $4.9 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s also examine 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 Vulcan Materials Company (NYSE:VMC), Restaurant Brands International Inc (NYSE:QSR), Freeport-McMoRan Inc. (NYSE:FCX), and Ameren Corporation (NYSE:AEE). This group of stocks’ market values are closest to FTS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VMC | 52 | 1631663 | -5 |
| QSR | 52 | 3118805 | -7 |
| FCX | 55 | 1663058 | 14 |
| AEE | 31 | 1678648 | -1 |
| Average | 47.5 | 2023044 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $2023 million. That figure was $768 million in FTS’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Fortis Inc. (NYSE:FTS) is even less popular than AEE. Hedge funds clearly dropped the ball on FTS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on FTS as the stock returned -16.7% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
