Hedge Funds Aren’t Crazy About Foundation Building Materials, Inc. (FBM) Anymore

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 (see why hell is coming). 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 Foundation Building Materials, Inc. (NYSE:FBM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Foundation Building Materials, Inc. (NYSE:FBM) was in 12 hedge funds’ portfolios at the end of March. FBM investors should pay attention to a decrease in hedge fund sentiment of late. There were 21 hedge funds in our database with FBM positions at the end of the previous quarter. Our calculations also showed that FBM 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma AdvisorsJohn Overdeck

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. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Foundation Building Materials, Inc. (NYSE:FBM).

Hedge fund activity in Foundation Building Materials, Inc. (NYSE:FBM)

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the fourth quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in FBM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Foundation Building Materials, Inc. (NYSE:FBM), which was worth $13.1 million at the end of the third quarter. On the second spot was Coliseum Capital which amassed $11.6 million worth of shares. Islet Management, Scoggin, and Two Sigma Advisors 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 Coliseum Capital allocated the biggest weight to Foundation Building Materials, Inc. (NYSE:FBM), around 3.15% of its 13F portfolio. Scoggin is also relatively very bullish on the stock, dishing out 2.47 percent of its 13F equity portfolio to FBM.

Due to the fact that Foundation Building Materials, Inc. (NYSE:FBM) has experienced falling interest from the smart money, it’s safe to say that there exists a select few funds that elected to cut their full holdings by the end of the first quarter. Interestingly, Israel Englander’s Millennium Management dumped the biggest position of all the hedgies tracked by Insider Monkey, totaling about $6.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $3.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 9 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Foundation Building Materials, Inc. (NYSE:FBM). These stocks are ArcBest Corp (NASDAQ:ARCB), RPC, Inc. (NYSE:RES), Provention Bio, Inc. (NASDAQ:PRVB), and National Energy Services Reunited Corp. (NASDAQ:NESR). This group of stocks’ market valuations are similar to FBM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARCB 11 41768 -2
RES 11 14862 -2
PRVB 8 38816 -1
NESR 5 17598 -3
Average 8.75 28261 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $45 million in FBM’s case. ArcBest Corp (NASDAQ:ARCB) is the most popular stock in this table. On the other hand National Energy Services Reunited Corp. (NASDAQ:NESR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Foundation Building Materials, Inc. (NYSE:FBM) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FBM as the stock returned 51.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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