Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards HB Fuller Co (NYSE:FUL).
HB Fuller Co (NYSE:FUL) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. HB Fuller Co (NYSE:FUL) was in 16 hedge funds’ portfolios at the end of March. The all time high for this statistic is 23. There were 18 hedge funds in our database with FUL holdings at the end of December. Our calculations also showed that FUL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 115 percentage points since March 2017 (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.
Jonathan Barrett of Luminus Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we’re going to take a look at the new hedge fund action surrounding HB Fuller Co (NYSE:FUL).
Do Hedge Funds Think FUL Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FUL over the last 23 quarters. 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, P2 Capital Partners was the largest shareholder of HB Fuller Co (NYSE:FUL), with a stake worth $97.4 million reported as of the end of March. Trailing P2 Capital Partners was GAMCO Investors, which amassed a stake valued at $34 million. Cardinal Capital, GLG Partners, and Two Sigma Advisors 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 P2 Capital Partners allocated the biggest weight to HB Fuller Co (NYSE:FUL), around 6.46% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, designating 0.61 percent of its 13F equity portfolio to FUL.
Due to the fact that HB Fuller Co (NYSE:FUL) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who sold off their positions entirely in the first quarter. Interestingly, Michael Gelband’s ExodusPoint Capital sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1.4 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund dropped about $1.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HB Fuller Co (NYSE:FUL) but similarly valued. These stocks are National Health Investors Inc (NYSE:NHI), Installed Building Products Inc (NYSE:IBP), GATX Corporation (NYSE:GATX), HMS Holdings Corp. (NASDAQ:HMSY), Cogent Communications Holdings Inc. (NASDAQ:CCOI), Associated Banc Corp (NYSE:ASB), and GrafTech International Ltd. (NYSE:EAF). This group of stocks’ market values are similar to FUL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NHI | 11 | 30136 | -2 |
| IBP | 21 | 95091 | 0 |
| GATX | 16 | 203739 | 4 |
| HMSY | 20 | 628574 | -6 |
| CCOI | 18 | 319894 | -5 |
| ASB | 24 | 221388 | 2 |
| EAF | 38 | 416723 | 6 |
| Average | 21.1 | 273649 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $178 million in FUL’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 11 bullish hedge fund positions. HB Fuller Co (NYSE:FUL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FUL is 33.1. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately FUL wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FUL investors were disappointed as the stock returned 0.5% since the end of March (through 7/23) 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 most of these stocks already outperformed the market in 2021.
Follow Fuller H B Co (NYSE:FUL)
Follow Fuller H B Co (NYSE:FUL)
Suggested Articles:
Disclosure: None. This article was originally published at Insider Monkey.
