Should I Avoid Federated Hermes, Inc. (FHI)?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Federated Hermes, Inc. (NYSE:FHI).

Is Federated Hermes, Inc. (NYSE:FHI) the right pick for your portfolio? Hedge funds were taking a pessimistic view. The number of long hedge fund bets decreased by 6 lately. Federated Hermes, Inc. (NYSE:FHI) was in 27 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that FHI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 33 hedge funds in our database with FHI holdings at the end of December.

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the fresh hedge fund action regarding Federated Hermes, Inc. (NYSE:FHI).

Do Hedge Funds Think FHI Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FHI over the last 23 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Federated Hermes, Inc. (NYSE:FHI). AQR Capital Management has a $41.6 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $30.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish contain Robert Pohly’s Samlyn Capital, John D. Gillespie’s Prospector Partners and Eric Sprott’s Sprott Asset Management. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Federated Hermes, Inc. (NYSE:FHI), around 2.97% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 1.81 percent of its 13F equity portfolio to FHI.

Seeing as Federated Hermes, Inc. (NYSE:FHI) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that slashed their full holdings last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $14.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $12.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Federated Hermes, Inc. (NYSE:FHI). We will take a look at Columbia Banking System Inc (NASDAQ:COLB), Patterson Companies, Inc. (NASDAQ:PDCO), Sprout Social, Inc. (NASDAQ:SPT), Lexington Realty Trust (NYSE:LXP), Steven Madden, Ltd. (NASDAQ:SHOO), Pacira Biosciences Inc (NASDAQ:PCRX), and Antero Resources Corp (NYSE:AR). This group of stocks’ market valuations match FHI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $191 million in FHI’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 12 bullish hedge fund positions. Federated Hermes, Inc. (NYSE:FHI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FHI is 59.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately FHI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FHI were disappointed as the stock returned 7.7% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.