We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Fortune Brands Home & Security Inc (NYSE:FBHS).
Fortune Brands Home & Security Inc (NYSE:FBHS) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 34 hedge funds’ portfolios at the end of December. At the end of this article we will also compare FBHS to other stocks including Mobile TeleSystems OJSC (NYSE:MBT), WEX Inc (NYSE:WEX), and Guidewire Software Inc (NYSE:GWRE) to get a better sense of its popularity.
According to most traders, hedge funds are assumed to be worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at the moment, We choose to focus on the crème de la crème of this group, approximately 850 funds. These investment experts oversee bulk of the hedge fund industry’s total capital, and by tracking their first-class equity investments, Insider Monkey has found many investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
James Dinan of York Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding Fortune Brands Home & Security Inc (NYSE:FBHS).
How have hedgies been trading Fortune Brands Home & Security Inc (NYSE:FBHS)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in FBHS a year ago. 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 holdings significantly (or already accumulated large positions).
The largest stake in Fortune Brands Home & Security Inc (NYSE:FBHS) was held by Holocene Advisors, which reported holding $101.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $95.2 million position. Other investors bullish on the company included GAMCO Investors, Adage Capital Management, and Giverny Capital. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to Fortune Brands Home & Security Inc (NYSE:FBHS), around 3.87% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 3.72 percent of its 13F equity portfolio to FBHS.
Because Fortune Brands Home & Security Inc (NYSE:FBHS) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers who sold off their full holdings by the end of the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, totaling about $59.9 million in stock. David Harding’s fund, Winton Capital Management, also dropped its stock, about $23.3 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Fortune Brands Home & Security Inc (NYSE:FBHS). These stocks are Mobile TeleSystems PJSC (NYSE:MBT), WEX Inc (NYSE:WEX), Guidewire Software Inc (NYSE:GWRE), and Westlake Chemical Corporation (NYSE:WLK). This group of stocks’ market valuations resemble FBHS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MBT | 13 | 478752 | -1 |
| WEX | 25 | 393579 | -1 |
| GWRE | 32 | 742137 | 8 |
| WLK | 22 | 335701 | 4 |
| Average | 23 | 487542 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $488 million. That figure was $562 million in FBHS’s case. Guidewire Software Inc (NYSE:GWRE) is the most popular stock in this table. On the other hand Mobile TeleSystems OJSC (NYSE:MBT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Fortune Brands Home & Security Inc (NYSE:FBHS) 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately FBHS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FBHS were disappointed as the stock returned -37.2% during the first two and a half months of 2020 (through March 16th) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
