Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Fresenius Medical Care AG & Co. KGaA (NYSE:FMS).
Is Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) a worthy investment today? Hedge funds are buying. The number of long hedge fund bets went up by 2 in recent months. Overall hedge fund sentiment towards FMS is at its all time high. This is usually a very bullish signal. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and outperformed the SPY by nearly 14 percentage points in 2.5 months. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, MTB, and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a glance at the recent hedge fund action surrounding Fresenius Medical Care AG & Co. KGaA (NYSE:FMS).
What does the smart money think about Fresenius Medical Care AG & Co. KGaA (NYSE:FMS)?
At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in FMS a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), worth close to $11.8 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which holds a $8.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Paul Marshall and Ian Wace’s Marshall Wace LLP.
As one would reasonably expect, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most valuable position in Fresenius Medical Care AG & Co. KGaA (NYSE:FMS). Millennium Management had $7.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $3.3 million investment in the stock during the quarter. The other funds with brand new FMS positions are John Overdeck and David Siegel’s Two Sigma Advisors and Matthew Tewksbury’s Stevens Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) but similarly valued. These stocks are TELUS Corporation (NYSE:TU), Discover Financial Services (NYSE:DFS), Kellogg Company (NYSE:K), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks’ market caps are closest to FMS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TU | 11 | 349812 | -1 |
| DFS | 37 | 741108 | 5 |
| K | 27 | 329154 | 2 |
| PH | 30 | 513662 | 3 |
| Average | 26.25 | 483434 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $483 million. That figure was $40 million in FMS’s case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is even less popular than TU. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on FMS as the stock returned 21.4% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
