Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Fairmount Santrol Holdings Inc (NYSE:FMSA).
Is Fairmount Santrol Holdings Inc (NYSE:FMSA) going to take off soon? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets moved up by 12 lately. FMSA was in 24 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with FMSA holdings at the end of the previous quarter. 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 Third Point Reinsurance Ltd (NYSE:TPRE), Capital Bank Financial Corp (NASDAQ:CBF), and Builders FirstSource, Inc. (NASDAQ:BLDR) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Hedge fund activity in Fairmount Santrol Holdings Inc (NYSE:FMSA)
Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 100% surge from the second quarter of 2016 and a 300% surge over the past 2 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Millennium Management, managed by Israel Englander, holds the number one position in Fairmount Santrol Holdings Inc (NYSE:FMSA). Millennium Management has a $48.1 million position in the stock. Coming in second is Alyeska Investment Group, led by Anand Parekh, holding a $29.2 million position. Other hedge funds and institutional investors that hold long positions comprise Till Bechtolsheimer’s Arosa Capital Management, Steve Cohen’s Point72 Asset Management and Todd J. Kantor’s Encompass Capital Advisors.
Now, some big names were leading the bulls’ herd. Millennium Management established the most valuable position in Fairmount Santrol Holdings Inc (NYSE:FMSA), while Alyeska Investment Group‘s large position was also a new one. The following funds were also among the new FMSA investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Dan Sobol and Lisa Hess’ SkyTop Capital Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Let’s go over hedge fund activity in other stocks similar to Fairmount Santrol Holdings Inc (NYSE:FMSA). These stocks are Third Point Reinsurance Ltd (NYSE:TPRE), Capital Bank Financial Corp (NASDAQ:CBF), Builders FirstSource, Inc. (NASDAQ:BLDR), and Nordic American Tanker Ltd (NYSE:NAT). This group of stocks’ market caps match FMSA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $154 million in FMSA’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Capital Bank Financial Corp (NASDAQ:CBF) is the least popular one with only 7 bullish hedge fund positions. Fairmount Santrol Holdings Inc (NYSE:FMSA) is not the most popular stock in this group but hedge fund interest is still above average and rapidly climbing. This is a positive signal, which makes FMSA a decent candidate to consider a long position in.