Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Fortinet Inc (NASDAQ:FTNT) in this article.
Fortinet Inc (NASDAQ:FTNT) investors should pay attention to an increase in hedge fund interest of late. FTNT was in 42 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 41 hedge funds in our database with FTNT positions at the end of the previous quarter. Our calculations also showed that FTNT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clifton S. Robbins of Blue Harbour
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a gander at the latest hedge fund action regarding Fortinet Inc (NASDAQ:FTNT).
How have hedgies been trading Fortinet Inc (NASDAQ:FTNT)?
Heading into the first quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the third quarter of 2019. By comparison, 33 hedge funds held shares or bullish call options in FTNT a year ago. So, let’s review 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 Fortinet Inc (NASDAQ:FTNT), which was worth $614 million at the end of the third quarter. On the second spot was Whale Rock Capital Management which amassed $210.3 million worth of shares. Two Sigma Advisors, Blue Harbour Group, and AQR Capital Management 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 Blue Harbour Group allocated the biggest weight to Fortinet Inc (NASDAQ:FTNT), around 11.01% of its 13F portfolio. Whale Rock Capital Management is also relatively very bullish on the stock, dishing out 3.57 percent of its 13F equity portfolio to FTNT.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, initiated the biggest position in Fortinet Inc (NASDAQ:FTNT). Whale Rock Capital Management had $210.3 million invested in the company at the end of the quarter. Vikas Lunia’s Lunia Capital also initiated a $5.3 million position during the quarter. The other funds with brand new FTNT positions are Mario Gabelli’s GAMCO Investors, Paul Tudor Jones’s Tudor Investment Corp, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s check out hedge fund activity in other stocks similar to Fortinet Inc (NASDAQ:FTNT). These stocks are ZTO Express (Cayman) Inc. (NYSE:ZTO), W.W. Grainger, Inc. (NYSE:GWW), International Paper Company (NYSE:IP), and Yum China Holdings, Inc. (NYSE:YUMC). This group of stocks’ market caps resemble FTNT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZTO | 14 | 497928 | -6 |
| GWW | 29 | 700506 | 4 |
| IP | 25 | 272873 | -3 |
| YUMC | 29 | 699257 | -5 |
| Average | 24.25 | 542641 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $543 million. That figure was $1765 million in FTNT’s case. W.W. Grainger, Inc. (NYSE:GWW) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Fortinet Inc (NASDAQ:FTNT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately FTNT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FTNT were disappointed as the stock returned -18.4% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
