How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fomento Economico Mexicano SAB (ADR) (NYSE:FMX).
Is Fomento Economico Mexicano SAB (ADR) (NYSE:FMX) ready to rally soon? It looks like money managers are becoming hopeful, since the number of long hedge fund bets that are revealed through the 13F filings inched up last quarter. In this way, at the end of September, 16 funds tracked by Insider Monkey held shares of FMX. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Visa Inc (NYSE:V), Merck & Co., Inc. (NYSE:MRK), and The Home Depot, Inc. (NYSE:HD) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s take a glance at the new action surrounding Fomento Economico Mexicano SAB (ADR) (NYSE:FMX).
Hedge fund activity in Fomento Economico Mexicano SAB (ADR) (NYSE:FMX)
Heading into the fourth quarter of 2016, 16 funds tracked by Insider Monkey were long this stock, up by 7% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in FMX heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the most valuable position in Fomento Economico Mexicano SAB (ADR) (NYSE:FMX), worth close to $40.3 million. On AQR Capital Management’s heels is Jim Simons’ Renaissance Technologies, with a $24.7 million position. Remaining peers with similar optimism consist of Richard Driehaus’ Driehaus Capital, Howard Marks’ Oaktree Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-microcap stocks.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Driehaus Capital established the largest position in Fomento Economico Mexicano SAB (ADR) (NYSE:FMX), as it had $24.4 million invested in the company at the end of the quarter. Howard Marks’ Oaktree Capital Management also initiated a $23 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fomento Economico Mexicano SAB (ADR) (NYSE:FMX) but similarly valued. We will take a look at Visa Inc (NYSE:V), Merck & Co., Inc. (NYSE:MRK), The Home Depot, Inc. (NYSE:HD), and The Walt Disney Company (NYSE:DIS). This group of stocks’ market values match FMX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| V | 115 | 10263707 | -3 |
| MRK | 84 | 3849838 | 18 |
| HD | 72 | 4308946 | 5 |
| DIS | 51 | 3800907 | 7 |
As you can see these stocks had an average of 80 hedge funds with bullish positions and the average amount invested in these stocks was $5.56 billion. That figure was just $208 million in FMX’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand The Walt Disney Company (NYSE:DIS) is the least popular one with only 51 bullish hedge fund positions. Compared to these stocks Fomento Economico Mexicano SAB (ADR) (NYSE:FMX) is even less popular than The Walt Disney Company (NYSE:DIS). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
