It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 FTI Consulting, Inc. (NYSE:FCN).
FTI Consulting, Inc. (NYSE:FCN) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of June. At the end of this article we will also compare FCN to other stocks including American National Insurance Company (NASDAQ:ANAT), Physicians Realty Trust (NYSE:DOC), and Dicks Sporting Goods Inc (NYSE:DKS) to get a better sense of its popularity. Our calculations also showed that FCN isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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 look at the fresh hedge fund action surrounding FTI Consulting, Inc. (NYSE:FCN).
Hedge fund activity in FTI Consulting, Inc. (NYSE:FCN)
At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FCN over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Bruce Emery’s Greenvale Capital has the most valuable position in FTI Consulting, Inc. (NYSE:FCN), worth close to $33.5 million, comprising 8.6% of its total 13F portfolio. Coming in second is GLG Partners, led by Noam Gottesman, holding a $28.6 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’s AQR Capital Management and Martin Whitman’s Third Avenue Management.
Because FTI Consulting, Inc. (NYSE:FCN) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few money managers that elected to cut their full holdings in the second quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of all the hedgies monitored by Insider Monkey, comprising about $5.6 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dumped about $1.8 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as FTI Consulting, Inc. (NYSE:FCN) but similarly valued. These stocks are American National Insurance Company (NASDAQ:ANAT), Physicians Realty Trust (NYSE:DOC), Dicks Sporting Goods Inc (NYSE:DKS), and FS KKR Capital Corp. (NYSE:FSK). All of these stocks’ market caps resemble FCN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANAT | 15 | 69087 | 6 |
| DOC | 12 | 47665 | 1 |
| DKS | 23 | 324924 | 3 |
| FSK | 16 | 223657 | -3 |
| Average | 16.5 | 166333 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $128 million in FCN’s case. Dicks Sporting Goods Inc (NYSE:DKS) is the most popular stock in this table. On the other hand Physicians Realty Trust (NYSE:DOC) is the least popular one with only 12 bullish hedge fund positions. FTI Consulting, Inc. (NYSE:FCN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on FCN as the stock returned 26.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
