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Did Hedge Funds Make The Right Call On Fortune Brands Home & Security Inc (FBHS) ?

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 Fortune Brands Home & Security Inc (NYSE:FBHS) based on that data and determine whether they were really smart about the stock.

Fortune Brands Home & Security Inc (NYSE:FBHS) was in 31 hedge funds’ portfolios at the end of March. FBHS has seen a decrease in support from the world’s most elite money managers lately. There were 34 hedge funds in our database with FBHS positions at the end of the previous quarter. Our calculations also showed that FBHS 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.

Mario Gabelli of GAMCO Investors

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 take a look at the key hedge fund action regarding Fortune Brands Home & Security Inc (NYSE:FBHS).

Hedge fund activity in Fortune Brands Home & Security Inc (NYSE:FBHS)

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in FBHS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FBHS A Good Stock To Buy?

The largest stake in Fortune Brands Home & Security Inc (NYSE:FBHS) was held by Southport Management, which reported holding $432.5 million worth of stock at the end of September. It was followed by Holocene Advisors with a $49.8 million position. Other investors bullish on the company included GAMCO Investors, AQR Capital Management, and Giverny Capital. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to Fortune Brands Home & Security Inc (NYSE:FBHS), around 4.82% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, earmarking 2.78 percent of its 13F equity portfolio to FBHS.

Since Fortune Brands Home & Security Inc (NYSE:FBHS) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who sold off their full holdings heading into Q4. It’s worth mentioning that Ken Griffin’s Citadel Investment Group cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at about $95.2 million in stock. Jack Woodruff’s fund, Candlestick Capital Management, also said goodbye to its stock, about $37.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Fortune Brands Home & Security Inc (NYSE:FBHS). We will take a look at Halliburton Company (NYSE:HAL), Entegris Inc (NASDAQ:ENTG), Omega Healthcare Investors Inc (NYSE:OHI), and 10x Genomics, Inc. (NASDAQ:TXG). All of these stocks’ market caps are similar to FBHS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HAL 32 513523 1
ENTG 19 488063 -5
OHI 17 152576 -1
TXG 20 166530 8
Average 22 330173 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $330 million. That figure was $640 million in FBHS’s case. Halliburton Company (NYSE:HAL) is the most popular stock in this table. On the other hand Omega Healthcare Investors Inc (NYSE:OHI) is the least popular one with only 17 bullish hedge fund positions. Fortune Brands Home & Security Inc (NYSE:FBHS) is not the most popular stock in this group but hedge fund interest is still above 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on FBHS as the stock returned 48.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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