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Hedge Funds Never Been This Bullish On Fortinet Inc (FTNT)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Fortinet Inc (NASDAQ:FTNT) based on that data and determine whether they were really smart about the stock.

Is Fortinet Inc (NASDAQ:FTNT) ready to rally soon? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets moved up by 15 lately. Fortinet Inc (NASDAQ:FTNT) was in 44 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FTNT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a peek at the recent hedge fund action regarding Fortinet Inc (NASDAQ:FTNT).

What have hedge funds been doing with Fortinet Inc (NASDAQ:FTNT)?

At Q2’s end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 52% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTNT over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Fortinet Inc (NASDAQ:FTNT), with a stake worth $820 million reported as of the end of September. Trailing Renaissance Technologies was Whale Rock Capital Management, which amassed a stake valued at $347.4 million. Two Sigma Advisors, Arrowstreet Capital, 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 Chiron Investment Management allocated the biggest weight to Fortinet Inc (NASDAQ:FTNT), around 3.43% of its 13F portfolio. Whale Rock Capital Management is also relatively very bullish on the stock, setting aside 2.77 percent of its 13F equity portfolio to FTNT.

Now, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most outsized position in Fortinet Inc (NASDAQ:FTNT). Millennium Management had $31.4 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $12.5 million investment in the stock during the quarter. The other funds with brand new FTNT positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks similar to Fortinet Inc (NASDAQ:FTNT). These stocks are Archer Daniels Midland Company (NYSE:ADM), Palo Alto Networks Inc (NYSE:PANW), Genmab A/S (NASDAQ:GMAB), Dollar Tree, Inc. (NASDAQ:DLTR), LyondellBasell Industries NV (NYSE:LYB), Equity Residential (NYSE:EQR), and AvalonBay Communities Inc (NYSE:AVB). This group of stocks’ market values match FTNT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADM 28 606680 -4
PANW 51 3587653 4
GMAB 15 243405 1
DLTR 60 2268495 18
LYB 32 509614 -3
EQR 33 555124 9
AVB 34 1283293 4
Average 36.1 1293466 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1293 million. That figure was $1815 million in FTNT’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 15 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTNT is 72.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FTNT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FTNT were disappointed as the stock returned -3.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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