Did Hedge Funds Make The Right Call On ForeScout Technologies, Inc. (FSCT) ?

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 ForeScout Technologies, Inc. (NASDAQ:FSCT) and determine whether hedge funds skillfully traded this stock.

ForeScout Technologies, Inc. (NASDAQ:FSCT) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. FSCT investors should pay attention to an increase in hedge fund interest of late. There were 21 hedge funds in our database with FSCT holdings at the end of the previous quarter. Our calculations also showed that FSCT 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Xiniya Earnings Call Transcript XNY 2014 Q3

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At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 view the recent hedge fund action surrounding ForeScout Technologies, Inc. (NASDAQ:FSCT).

Hedge fund activity in ForeScout Technologies, Inc. (NASDAQ:FSCT)

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSCT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Water Island Capital was the largest shareholder of ForeScout Technologies, Inc. (NASDAQ:FSCT), with a stake worth $60.4 million reported as of the end of September. Trailing Water Island Capital was Sand Grove Capital Partners, which amassed a stake valued at $59.9 million. Beryl Capital Management, Melqart Asset Management, and Alpine Associates 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 Sand Grove Capital Partners allocated the biggest weight to ForeScout Technologies, Inc. (NASDAQ:FSCT), around 10.71% of its 13F portfolio. Beryl Capital Management is also relatively very bullish on the stock, dishing out 10.15 percent of its 13F equity portfolio to FSCT.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Water Island Capital, managed by John Orrico, established the most outsized position in ForeScout Technologies, Inc. (NASDAQ:FSCT). Water Island Capital had $60.4 million invested in the company at the end of the quarter. Simon Davies’s Sand Grove Capital Partners also initiated a $59.9 million position during the quarter. The following funds were also among the new FSCT investors: David Alexander Witkin’s Beryl Capital Management, Michel Massoud’s Melqart Asset Management, and Robert Emil Zoellner’s Alpine Associates.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ForeScout Technologies, Inc. (NASDAQ:FSCT) but similarly valued. These stocks are Kennametal Inc. (NYSE:KMT), Albany International Corp. (NYSE:AIN), FormFactor, Inc. (NASDAQ:FORM), and Macy’s, Inc. (NYSE:M). This group of stocks’ market values match FSCT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KMT 17 147627 -2
AIN 18 51239 -1
FORM 22 92958 0
M 30 355877 -2
Average 21.75 161925 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $422 million in FSCT’s case. Macy’s, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Kennametal Inc. (NYSE:KMT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks ForeScout Technologies, Inc. (NASDAQ:FSCT) 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 FSCT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FSCT were disappointed as the stock returned -32.9% 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.