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Should You Avoid TechnipFMC plc (FTI)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of TechnipFMC plc (NYSE:FTI).

TechnipFMC plc (NYSE:FTI) investors should be aware of a decrease in hedge fund interest in recent months. FTI was in 23 hedge funds’ portfolios at the end of September. There were 26 hedge funds in our database with FTI positions at the end of the previous quarter. Our calculations also showed that FTI isn’t among the 30 most popular stocks among hedge funds.

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.

Kerr Neilson

We’re going to check out the key hedge fund action encompassing TechnipFMC plc (NYSE:FTI).

What does the smart money think about TechnipFMC plc (NYSE:FTI)?

Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FTI 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.

FTI_dec2018

Among these funds, Platinum Asset Management held the most valuable stake in TechnipFMC plc (NYSE:FTI), which was worth $264.2 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $63.8 million worth of shares. Moreover, Alyeska Investment Group, Odey Asset Management Group, and Arosa Capital Management were also bullish on TechnipFMC plc (NYSE:FTI), allocating a large percentage of their portfolios to this stock.

Seeing as TechnipFMC plc (NYSE:FTI) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that slashed their full holdings in the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, worth close to $58.2 million in stock. Michael Price’s fund, MFP Investors, also said goodbye to its stock, about $26.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to TechnipFMC plc (NYSE:FTI). These stocks are Nasdaq, Inc. (NASDAQ:NDAQ), Apollo Global Management LLC (NYSE:APO), Vornado Realty Trust (NYSE:VNO), and CMS Energy Corporation (NYSE:CMS). This group of stocks’ market values are closest to FTI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDAQ 20 309953 2
APO 22 1524416 3
VNO 25 481421 -1
CMS 22 282246 4
Average 22.25 649509 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $527 million in FTI’s case. Vornado Realty Trust (NYSE:VNO) is the most popular stock in this table. On the other hand Nasdaq, Inc. (NASDAQ:NDAQ) is the least popular one with only 20 bullish hedge fund positions. TechnipFMC plc (NYSE:FTI) 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 VNO might be a better candidate to consider a long position.

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

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