Were Hedge Funds Right About Buying HB Fuller Co (FUL)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HB Fuller Co (NYSE:FUL) and determine whether hedge funds had an edge regarding this stock.

HB Fuller Co (NYSE:FUL) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. FUL investors should be aware of an increase in hedge fund sentiment lately. There were 14 hedge funds in our database with FUL positions at the end of the previous quarter. Our calculations also showed that FUL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (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.


Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s review the key hedge fund action encompassing HB Fuller Co (NYSE:FUL).

What have hedge funds been doing with HB Fuller Co (NYSE:FUL)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in FUL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FUL A Good Stock To Buy?

Among these funds, P2 Capital Partners held the most valuable stake in HB Fuller Co (NYSE:FUL), which was worth $46.4 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $14.4 million worth of shares. Luminus Management, Akaris Global Partners, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to HB Fuller Co (NYSE:FUL), around 5.55% of its 13F portfolio. Akaris Global Partners is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to FUL.

As aggregate interest increased, some big names have jumped into HB Fuller Co (NYSE:FUL) headfirst. Millennium Management, managed by Israel Englander, initiated the biggest position in HB Fuller Co (NYSE:FUL). Millennium Management had $5.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new FUL investors: Greg Eisner’s Engineers Gate Manager, Paul Tudor Jones’s Tudor Investment Corp, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks similar to HB Fuller Co (NYSE:FUL). These stocks are Columbia Property Trust Inc (NYSE:CXP), United Community Banks Inc (NASDAQ:UCBI), SPX Corporation (NYSE:SPXC), and Redfin Corporation (NASDAQ:RDFN). This group of stocks’ market valuations are closest to FUL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CXP 17 50559 -5
UCBI 11 28692 -5
SPXC 14 47679 -5
RDFN 20 106902 5
Average 15.5 58458 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $124 million in FUL’s case. Redfin Corporation (NASDAQ:RDFN) is the most popular stock in this table. On the other hand United Community Banks Inc (NASDAQ:UCBI) is the least popular one with only 11 bullish hedge fund positions. HB Fuller Co (NYSE:FUL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on FUL as the stock returned 64.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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