There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Federated Investors Inc (NYSE:FII).
Hedge fund interest in Federated Investors Inc (NYSE:FII) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Delek US Holdings, Inc. (NYSE:DK), GATX Corporation (NYSE:GATX), and Columbia Banking System Inc (NASDAQ:COLB) to gather more data points.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the recent hedge fund action regarding Federated Investors Inc (NYSE:FII).
How are hedge funds trading Federated Investors Inc (NYSE:FII)?
At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in FII a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Federated Investors Inc (NYSE:FII), with a stake worth $52.4 million reported as of the end of September. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $27.2 million. Royce & Associates, Prospector Partners, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Since Federated Investors Inc (NYSE:FII) has experienced bearish sentiment from the smart money, it’s easy to see that there were a few fund managers that decided to sell off their full holdings heading into Q3. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dumped the biggest stake of the 700 funds monitored by Insider Monkey, totaling an estimated $2.7 million in stock. Mark Broach’s fund, Manatuck Hill Partners, also said goodbye to its stock, about $0.6 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Federated Investors Inc (NYSE:FII). These stocks are Delek US Holdings, Inc. (NYSE:DK), GATX Corporation (NYSE:GATX), Columbia Banking System Inc (NASDAQ:COLB), and AMN Healthcare Services Inc (NYSE:AMN). This group of stocks’ market caps match FII’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DK | 27 | 233596 | -4 |
| GATX | 14 | 221069 | 3 |
| COLB | 10 | 132785 | -1 |
| AMN | 15 | 48895 | 0 |
| Average | 16.5 | 159086 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $146 million in FII’s case. Delek US Holdings, Inc. (NYSE:DK) is the most popular stock in this table. On the other hand Columbia Banking System Inc (NASDAQ:COLB) is the least popular one with only 10 bullish hedge fund positions. Federated Investors Inc (NYSE:FII) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on FII, though not to the same extent, as the stock returned 24% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
