Is Fitbit Inc (NYSE:FIT) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
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 review the recent hedge fund action surrounding Fitbit Inc (NYSE:FIT).
What have hedge funds been doing with Fitbit Inc (NYSE:FIT)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the second quarter of 2018. By comparison, 21 hedge funds held shares or bullish call options in FIT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Fitbit Inc (NYSE:FIT), with a stake worth $28.7 million reported as of the end of December. Trailing Millennium Management was Renaissance Technologies, which amassed a stake valued at $28.5 million. Citadel Investment Group, Parian Global Management, and PDT Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Fitbit Inc (NYSE:FIT) has faced declining sentiment from the smart money, it’s easy to see that there were a few hedge funds that slashed their full holdings last quarter. It’s worth mentioning that Philippe Laffont’s Coatue Management said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $17 million in stock. Richard Mashaal’s fund, Rima Senvest Management, also dropped its stock, about $6.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Fitbit Inc (NYSE:FIT). We will take a look at Hudbay Minerals Inc. (NYSE:HBM), Esperion Therapeutics, Inc. (NASDAQ:ESPR), Cannae Holdings, Inc. (NYSE:CNNE), and TPG RE Finance Trust, Inc. (NYSE:TRTX). All of these stocks’ market caps are similar to FIT’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $83 million in FIT’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand TPG RE Finance Trust, Inc. (NYSE:TRTX) is the least popular one with only 9 bullish hedge fund positions. Fitbit Inc (NYSE:FIT) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FIT wasn’t nearly as popular as these 15 stock and hedge funds that were betting on FIT were disappointed as the stock returned 8.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.