Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Fidelity National Information Services Inc. (NYSE:FIS) and compare its performance to hedge funds’ consensus picks in 2019.
Fidelity National Information Services Inc. (NYSE:FIS) was in 90 hedge funds’ portfolios at the end of September. FIS shareholders have witnessed an increase in hedge fund sentiment of late. There were 59 hedge funds in our database with FIS positions at the end of the previous quarter. Our calculations also showed that FIS currently ranks 19th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
William Von Mueffling of Cantillon Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s view the new hedge fund action regarding Fidelity National Information Services Inc. (NYSE:FIS).
How have hedgies been trading Fidelity National Information Services Inc. (NYSE:FIS)?
Heading into the fourth quarter of 2019, a total of 90 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 53% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in FIS 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 adding to their stakes significantly (or already accumulated large positions).
The largest stake in Fidelity National Information Services Inc. (NYSE:FIS) was held by Cantillon Capital Management, which reported holding $551.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $519.7 million position. Other investors bullish on the company included Melvin Capital Management, Steadfast Capital Management, and Farallon Capital. In terms of the portfolio weights assigned to each position Atalan Capital allocated the biggest weight to Fidelity National Information Services Inc. (NYSE:FIS), around 12.17% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, earmarking 11.3 percent of its 13F equity portfolio to FIS.
As aggregate interest increased, key money managers have jumped into Fidelity National Information Services Inc. (NYSE:FIS) headfirst. Third Point, managed by Dan Loeb, initiated the biggest position in Fidelity National Information Services Inc. (NYSE:FIS). Third Point had $331.9 million invested in the company at the end of the quarter. Tim Hurd and Ed Magnus’s BlueSpruce Investments also made a $293.6 million investment in the stock during the quarter. The other funds with brand new FIS positions are Aaron Cowen’s Suvretta Capital Management, Ric Dillon’s Diamond Hill Capital, and Robert Joseph Caruso’s Select Equity Group.
Let’s go over hedge fund activity in other stocks similar to Fidelity National Information Services Inc. (NYSE:FIS). These stocks are Banco Santander (Brasil) SA (NYSE:BSBR), Stryker Corporation (NYSE:SYK), Gilead Sciences, Inc. (NASDAQ:GILD), and Mondelez International Inc (NASDAQ:MDLZ). This group of stocks’ market caps resemble FIS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BSBR | 14 | 125130 | 3 |
| SYK | 33 | 527278 | 3 |
| GILD | 58 | 3262691 | 1 |
| MDLZ | 52 | 2813252 | 5 |
| Average | 39.25 | 1682088 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1682 million. That figure was $7126 million in FIS’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Fidelity National Information Services Inc. (NYSE:FIS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FIS, though not to the same extent, as the stock returned 36.3% during the same period and outperformed the market as well.
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.
