At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Focus Financial Partners Inc. (NASDAQ:FOCS).
Is Focus Financial Partners Inc. (NASDAQ:FOCS) a bargain? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions dropped by 5 in recent months. Our calculations also showed that FOCS 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.
George Soros of Soros Fund Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the recent hedge fund action regarding Focus Financial Partners Inc. (NASDAQ:FOCS).
What does smart money think about Focus Financial Partners Inc. (NASDAQ:FOCS)?
At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -42% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in FOCS a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Centerbridge Partners was the largest shareholder of Focus Financial Partners Inc. (NASDAQ:FOCS), with a stake worth $20.8 million reported as of the end of September. Trailing Centerbridge Partners was Schonfeld Strategic Advisors, which amassed a stake valued at $4.3 million. Soros Fund Management, Marshall Wace LLP, and Citadel Investment Group 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 Centerbridge Partners allocated the biggest weight to Focus Financial Partners Inc. (NASDAQ:FOCS), around 5.03% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, designating 0.27 percent of its 13F equity portfolio to FOCS.
Judging by the fact that Focus Financial Partners Inc. (NASDAQ:FOCS) has experienced falling interest from the smart money, it’s easy to see that there were a few money managers that slashed their positions entirely last quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $4.9 million in stock. Jim Simons (founder)’s fund, Renaissance Technologies, also dumped its stock, about $1.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Focus Financial Partners Inc. (NASDAQ:FOCS). These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Studio City International Holdings Limited (NYSE:MSC), Apache Corporation (NASDAQ:APA), and Bandwidth Inc. (NASDAQ:BAND). This group of stocks’ market caps are closest to FOCS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WABC | 8 | 8181 | -3 |
| MSC | 3 | 244275 | -1 |
| APA | 35 | 142310 | 1 |
| BAND | 33 | 195011 | 15 |
| Average | 19.75 | 147444 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $35 million in FOCS’s case. Apache Corporation (NASDAQ:APA) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 3 bullish hedge fund positions. Focus Financial Partners Inc. (NASDAQ:FOCS) 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on FOCS as the stock returned 27.9% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
