Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Federated Investors Inc (NYSE:FII).
Federated Investors Inc (NYSE:FII) has seen an increase in hedge fund sentiment lately. Our calculations also showed that FII isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most investors, hedge funds are viewed as underperforming, old investment tools of the past. While there are greater than 8000 funds in operation at the moment, Our experts look at the upper echelon of this club, around 750 funds. These investment experts manage the lion’s share of the hedge fund industry’s total asset base, and by observing their inimitable stock picks, Insider Monkey has figured out several investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the recent hedge fund action regarding Federated Investors Inc (NYSE:FII).
Hedge fund activity in Federated Investors Inc (NYSE:FII)
Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 69% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FII over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Federated Investors Inc (NYSE:FII). Arrowstreet Capital has a $57.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $40.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish consist of Israel Englander’s Millennium Management, Cliff Asness’s AQR Capital Management and Robert Pohly’s Samlyn Capital.
Consequently, key money managers have been driving this bullishness. Samlyn Capital, managed by Robert Pohly, established the biggest position in Federated Investors Inc (NYSE:FII). Samlyn Capital had $24.5 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also made a $9.6 million investment in the stock during the quarter. The following funds were also among the new FII investors: Gregg Moskowitz’s Interval Partners, Steve Cohen’s Point72 Asset Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Federated Investors Inc (NYSE:FII) but similarly valued. These stocks are Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Semtech Corporation (NASDAQ:SMTC), Louisiana-Pacific Corporation (NYSE:LPX), and Moog Inc (NYSE:MOG). This group of stocks’ market caps resemble FII’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TARO | 10 | 72472 | 0 |
| SMTC | 17 | 208784 | -2 |
| LPX | 27 | 393287 | -1 |
| MOG | 18 | 118775 | 1 |
| Average | 18 | 198330 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $275 million in FII’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 10 bullish hedge fund positions. Federated Investors Inc (NYSE:FII) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FII wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FII were disappointed as the stock returned 0.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
