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Did Hedge Funds Drop The Ball On Fluor Corporation (FLR) ?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Fluor Corporation (NYSE:FLR).

Fluor Corporation (NYSE:FLR) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that FLR isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

We’re going to review the recent hedge fund action encompassing Fluor Corporation (NYSE:FLR).

What have hedge funds been doing with Fluor Corporation (NYSE:FLR)?

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in FLR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FLR_apr2019

More specifically, Ashler Capital was the largest shareholder of Fluor Corporation (NYSE:FLR), with a stake worth $88.8 million reported as of the end of September. Trailing Ashler Capital was Ariel Investments, which amassed a stake valued at $39.9 million. Two Sigma Advisors, D E Shaw, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Fluor Corporation (NYSE:FLR) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $80.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $47 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fluor Corporation (NYSE:FLR) but similarly valued. We will take a look at RealPage, Inc. (NASDAQ:RP), Hanesbrands Inc. (NYSE:HBI), TFS Financial Corporation (NASDAQ:TFSL), and The Stars Group Inc. (NASDAQ:TSG). This group of stocks’ market caps match FLR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RP 21 343809 -6
HBI 28 310452 10
TFSL 7 137225 -2
TSG 40 582898 -12
Average 24 343596 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $223 million in FLR’s case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 7 bullish hedge fund positions. Fluor Corporation (NYSE:FLR) is not the least popular stock in this group but hedge fund interest is still below average. 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 FLR as the stock returned 29.1% and outperformed the market by an even larger margin.

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

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