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Did Hedge Funds Make The Right Call On Federated Hermes, Inc. (FHI) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtFederated Hermes, Inc. (NYSE:FHI) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Federated Hermes, Inc. (NYSE:FHI) ready to rally soon? Hedge funds were in a bearish mood. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that FHI 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). FHI was in 28 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with FHI holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen

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. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the new hedge fund action surrounding Federated Hermes, Inc. (NYSE:FHI).

Hedge fund activity in Federated Hermes, Inc. (NYSE:FHI)

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FHI over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FHI A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Federated Hermes, Inc. (NYSE:FHI), which was worth $18 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $16.9 million worth of shares. Marshall Wace LLP, Arrowstreet Capital, and Renaissance Technologies 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 Hourglass Capital allocated the biggest weight to Federated Hermes, Inc. (NYSE:FHI), around 1.71% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 0.45 percent of its 13F equity portfolio to FHI.

Because Federated Hermes, Inc. (NYSE:FHI) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes last quarter. Interestingly, Robert Pohly’s Samlyn Capital said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, worth an estimated $39.7 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $29.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Federated Hermes, Inc. (NYSE:FHI). These stocks are Louisiana-Pacific Corporation (NYSE:LPX), Telephone & Data Systems, Inc. (NYSE:TDS), Trinity Industries, Inc. (NYSE:TRN), and Altair Engineering Inc. (NASDAQ:ALTR). All of these stocks’ market caps resemble FHI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LPX 26 326375 -3
TDS 21 149832 -1
TRN 18 621944 -9
ALTR 9 195585 -1
Average 18.5 323434 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $115 million in FHI’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Federated Hermes, Inc. (NYSE:FHI) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FHI as the stock returned 26% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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