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Hedge Funds Are Souring On Fresenius Medical Care AG & Co. KGaA (FMS)

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 Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) and determine whether hedge funds skillfully traded this stock.

Is Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) a safe investment right now? The best stock pickers were taking a bearish view. The number of long hedge fund bets shrunk by 1 recently. Our calculations also showed that FMS 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). FMS was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 11 hedge funds in our database with FMS holdings at the end of the previous quarter.

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

To most traders, hedge funds are seen as slow, old financial vehicles of the past. While there are over 8000 funds with their doors open today, Our researchers look at the bigwigs of this group, about 850 funds. These investment experts oversee the lion’s share of all hedge funds’ total asset base, and by tracking their finest picks, Insider Monkey has found several investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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 let’s take a glance at the new hedge fund action surrounding Fresenius Medical Care AG & Co. KGaA (NYSE:FMS).

How have hedgies been trading Fresenius Medical Care AG & Co. KGaA (NYSE:FMS)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FMS over the last 18 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) was held by Millennium Management, which reported holding $6.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $3.1 million position. Other investors bullish on the company included Marshall Wace LLP, Balyasny Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), around 0.07% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to FMS.

Since Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes by the end of the first quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest investment of all the hedgies followed by Insider Monkey, comprising about $0.6 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Fresenius Medical Care AG & Co. KGaA (NYSE:FMS). We will take a look at Trane Technologies plc (NYSE:TT), Cerner Corporation (NASDAQ:CERN), Barclays PLC (NYSE:BCS), and Archer Daniels Midland Company (NYSE:ADM). This group of stocks’ market values resemble FMS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TT 36 615498 36
CERN 41 1005893 7
BCS 13 33314 2
ADM 32 563664 4
Average 30.5 554592 12.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $17 million in FMS’s case. Cerner Corporation (NASDAQ:CERN) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is even less popular than BCS. Hedge funds clearly dropped the ball on FMS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on FMS as the stock returned 32% in 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.