Did Hedge Funds Make The Right Call On Fortive Corporation (FTV) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Fortive Corporation (NYSE:FTV) based on that data and determine whether they were really smart about the stock.

Fortive Corporation (NYSE:FTV) was in 35 hedge funds’ portfolios at the end of March. FTV has seen a decrease in enthusiasm from smart money lately. There were 43 hedge funds in our database with FTV positions at the end of the previous quarter. Our calculations also showed that FTV 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.

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 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 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.

Phill Gross of Adage Capital 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. 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. With all of this in mind let’s go over the recent hedge fund action regarding Fortive Corporation (NYSE:FTV).

How are hedge funds trading Fortive Corporation (NYSE:FTV)?

Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in FTV a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is FTV A Good Stock To Buy?

The largest stake in Fortive Corporation (NYSE:FTV) was held by Viking Global, which reported holding $519.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $97.5 million position. Other investors bullish on the company included Adage Capital Management, D E Shaw, and Select Equity Group. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Fortive Corporation (NYSE:FTV), around 5.37% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 3.48 percent of its 13F equity portfolio to FTV.

Because Fortive Corporation (NYSE:FTV) has faced a decline in interest from hedge fund managers, logic holds that there were a few funds that elected to cut their positions entirely in the first quarter. Intriguingly, Jeffrey Gates’s Gates Capital Management dropped the largest stake of the 750 funds tracked by Insider Monkey, totaling about $81.1 million in stock. Ian Simm’s fund, Impax Asset Management, also cut its stock, about $24 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fortive Corporation (NYSE:FTV) but similarly valued. These stocks are Cadence Design Systems Inc (NASDAQ:CDNS), Valero Energy Corporation (NYSE:VLO), RingCentral Inc (NYSE:RNG), and Southwest Airlines Co. (NYSE:LUV). This group of stocks’ market values match FTV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDNS 31 1339958 -11
VLO 45 275743 -1
RNG 67 2827940 5
LUV 45 2344803 1
Average 47 1697111 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 47 hedge funds with bullish positions and the average amount invested in these stocks was $1697 million. That figure was $1015 million in FTV’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Cadence Design Systems Inc (NASDAQ:CDNS) is the least popular one with only 31 bullish hedge fund positions. Fortive Corporation (NYSE:FTV) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on FTV, though not to the same extent, as the stock returned 22.7% during the second quarter and outperformed the market.

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