Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% 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’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like FTI Consulting, Inc. (NYSE:FCN).
FTI Consulting, Inc. (NYSE:FCN) was in 16 hedge funds’ portfolios at the end of December. FCN shareholders have witnessed a decrease in support from the world’s most elite money managers lately. There were 18 hedge funds in our database with FCN holdings at the end of the previous quarter. Our calculations also showed that fcn isn’t among the 30 most popular stocks among hedge funds.
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.
Let’s view the key hedge fund action encompassing FTI Consulting, Inc. (NYSE:FCN).
How are hedge funds trading FTI Consulting, Inc. (NYSE:FCN)?
Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in FCN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenvale Capital was the largest shareholder of FTI Consulting, Inc. (NYSE:FCN), with a stake worth $25.9 million reported as of the end of September. Trailing Greenvale Capital was GLG Partners, which amassed a stake valued at $18.3 million. Gotham Asset Management, Winton Capital Management, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because FTI Consulting, Inc. (NYSE:FCN) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their entire stakes by the end of the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group sold off the largest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $2.8 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund said goodbye to about $2.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as FTI Consulting, Inc. (NYSE:FCN) but similarly valued. We will take a look at Hilton Grand Vacations Inc. (NYSE:HGV), Axon Enterprise, Inc. (NASDAQ:AAXN), Ryder System, Inc. (NYSE:R), and NuVasive, Inc. (NASDAQ:NUVA). This group of stocks’ market values match FCN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HGV | 28 | 705198 | 1 |
| AAXN | 16 | 228557 | 0 |
| R | 19 | 372942 | -4 |
| NUVA | 20 | 207882 | -2 |
| Average | 20.75 | 378645 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $116 million in FCN’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Axon Enterprise, Inc. (NASDAQ:AAXN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks FTI Consulting, Inc. (NYSE:FCN) is even less popular than AAXN. 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. A small number of hedge funds were also right about betting on FCN, though not to the same extent, as the stock returned 17.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
