We can judge whether Federated Investors Inc (NYSE:FII) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Federated Investors Inc (NYSE:FII) a buy here? The smart money is taking a bearish view. The number of bullish hedge fund positions were trimmed by 4 lately. Our calculations also showed that fii isn’t among the 30 most popular stocks among hedge funds. FII was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. There were 19 hedge funds in our database with FII positions at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a glance at the recent hedge fund action surrounding Federated Investors Inc (NYSE:FII).
Hedge fund activity in Federated Investors Inc (NYSE:FII)
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FII over the last 13 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Federated Investors Inc (NYSE:FII), with a stake worth $45.4 million reported as of the end of September. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $36.4 million. Millennium Management, Prospector Partners, and Sprott Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Federated Investors Inc (NYSE:FII) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $2.3 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also cut its stock, about $0.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Federated Investors Inc (NYSE:FII) but similarly valued. We will take a look at Piedmont Office Realty Trust, Inc. (NYSE:PDM), Repligen Corporation (NASDAQ:RGEN), WesBanco, Inc. (NASDAQ:WSBC), and Reata Pharmaceuticals, Inc. (NASDAQ:RETA). This group of stocks’ market values are closest to FII’s market value.
|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 12 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $143 million in FII’s case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand WesBanco, Inc. (NASDAQ:WSBC) is the least popular one with only 9 bullish hedge fund positions. Federated Investors Inc (NYSE:FII) 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. In this regard RETA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.