Is FHI Stock A Buy or Sell?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Federated Hermes, Inc. (NYSE:FHI).

Is FHI stock a buy? Federated Hermes, Inc. (NYSE:FHI) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Federated Hermes, Inc. (NYSE:FHI) was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FHI isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s check out the key hedge fund action surrounding Federated Hermes, Inc. (NYSE:FHI).

Do Hedge Funds Think FHI Is A Good Stock To Buy Now?

At the end of December, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in FHI over the last 22 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Federated Hermes, Inc. (NYSE:FHI) was held by AQR Capital Management, which reported holding $31.7 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $31.4 million position. Other investors bullish on the company included Balyasny Asset Management, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Federated Hermes, Inc. (NYSE:FHI), around 1.64% of its 13F portfolio. Full18 Capital is also relatively very bullish on the stock, setting aside 1.59 percent of its 13F equity portfolio to FHI.

With a general bullishness amongst the heavyweights, some big names have jumped into Federated Hermes, Inc. (NYSE:FHI) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Federated Hermes, Inc. (NYSE:FHI). Balyasny Asset Management had $14.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $12.5 million position during the quarter. The other funds with brand new FHI positions are Sander Gerber’s Hudson Bay Capital Management, Allon Hellmann’s Full18 Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to Federated Hermes, Inc. (NYSE:FHI). We will take a look at Fabrinet (NYSE:FN), Sunoco LP (NYSE:SUN), Box, Inc. (NYSE:BOX), Patterson Companies, Inc. (NASDAQ:PDCO), Blackbaud, Inc. (NASDAQ:BLKB), GrafTech International Ltd. (NYSE:EAF), and Cornerstone OnDemand, Inc. (NASDAQ:CSOD). This group of stocks’ market values are similar to FHI’s market value.

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As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $188 million in FHI’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 3 bullish hedge fund positions. Federated Hermes, Inc. (NYSE:FHI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FHI is 87.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. Hedge funds were also right about betting on FHI as the stock returned 8.7% since the end of Q4 (through 4/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.