We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards FireEye Inc (NASDAQ:FEYE) and determine whether hedge funds skillfully traded this stock.
FireEye Inc (NASDAQ:FEYE) was in 32 hedge funds’ portfolios at the end of March. FEYE has experienced an increase in support from the world’s most elite money managers recently. There were 30 hedge funds in our database with FEYE positions at the end of the previous quarter. Our calculations also showed that FEYE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to take a gander at the new hedge fund action encompassing FireEye Inc (NASDAQ:FEYE).
How have hedgies been trading FireEye Inc (NASDAQ:FEYE)?
At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the fourth quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in FEYE 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, Citadel Investment Group was the largest shareholder of FireEye Inc (NASDAQ:FEYE), with a stake worth $35.9 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $22.3 million. Osterweis Capital Management, Fisher Asset Management, and Lynrock Lake 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 Trellus Management Company allocated the biggest weight to FireEye Inc (NASDAQ:FEYE), around 1.99% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, designating 1.39 percent of its 13F equity portfolio to FEYE.
As one would reasonably expect, key hedge funds have been driving this bullishness. Lynrock Lake, managed by Cynthia Paul, initiated the biggest position in FireEye Inc (NASDAQ:FEYE). Lynrock Lake had $12.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, Adam Usdan’s Trellus Management Company, and Marc Majzner’s Clearline Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as FireEye Inc (NASDAQ:FEYE) but similarly valued. We will take a look at BRF SA (NYSE:BRFS), John Bean Technologies Corporation (NYSE:JBT), Youdao, Inc. (NYSE:DAO), and Norwegian Cruise Line Holdings Ltd (NYSE:NCLH). All of these stocks’ market caps are similar to FEYE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRFS | 14 | 34760 | 0 |
| JBT | 12 | 69622 | -4 |
| DAO | 6 | 183674 | 3 |
| NCLH | 20 | 113661 | -18 |
| Average | 13 | 100429 | -4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $160 million in FEYE’s case. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks FireEye Inc (NASDAQ:FEYE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately FEYE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FEYE were disappointed as the stock returned 15.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
