Were Hedge Funds Right About Fortune Brands Home & Security Inc (FBHS)?

Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Fortune Brands Home & Security Inc (NYSE:FBHS).

Is Fortune Brands Home & Security Inc (NYSE:FBHS) ready to rally soon? Investors who are in the know are turning bullish. The number of long hedge fund positions advanced by 2 recently. Our calculations also showed that FBHS isn’t among the 30 most popular stocks among hedge funds (see the video below). FBHS was in 31 hedge funds’ portfolios at the end of June. There were 29 hedge funds in our database with FBHS holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the recent hedge fund action regarding Fortune Brands Home & Security Inc (NYSE:FBHS).

What does smart money think about Fortune Brands Home & Security Inc (NYSE:FBHS)?

At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in FBHS 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.

GAMCO Investors, Mario Gabelli

More specifically, Citadel Investment Group was the largest shareholder of Fortune Brands Home & Security Inc (NYSE:FBHS), with a stake worth $146.6 million reported as of the end of March. Trailing Citadel Investment Group was Holocene Advisors, which amassed a stake valued at $87.6 million. Adage Capital Management, GAMCO Investors, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names have been driving this bullishness. Winton Capital Management, managed by David Harding, established the most outsized position in Fortune Brands Home & Security Inc (NYSE:FBHS). Winton Capital Management had $19.3 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $6.9 million position during the quarter. The following funds were also among the new FBHS investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Ed Bosek’s BeaconLight Capital, and Noam Gottesman’s GLG Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Fortune Brands Home & Security Inc (NYSE:FBHS) but similarly valued. These stocks are Bruker Corporation (NASDAQ:BRKR), A. O. Smith Corporation (NYSE:AOS), Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM), and Cognex Corporation (NASDAQ:CGNX). This group of stocks’ market caps are closest to FBHS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRKR 27 521013 2
AOS 22 512410 -5
SQM 7 23441 -2
CGNX 13 272646 0
Average 17.25 332378 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $643 million in FBHS’s case. Bruker Corporation (NASDAQ:BRKR) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Fortune Brands Home & Security Inc (NYSE:FBHS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FBHS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FBHS were disappointed as the stock returned -3.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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