Were Hedge Funds Right About Souring On FLIR Systems, Inc. (FLIR)?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards FLIR Systems, Inc. (NASDAQ:FLIR) during the quarter below.

FLIR Systems, Inc. (NASDAQ:FLIR) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2018. FLIR shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 27 hedge funds in our database with FLIR positions at the end of the previous quarter. Our calculations also showed that FLIR isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

We’re going to analyze the key hedge fund action regarding FLIR Systems, Inc. (NASDAQ:FLIR).

Hedge fund activity in FLIR Systems, Inc. (NASDAQ:FLIR)

Heading into the first quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FLIR over the last 14 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in FLIR Systems, Inc. (NASDAQ:FLIR), worth close to $116.9 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $72.5 million position; 0.6% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions contain D. E. Shaw’s D E Shaw, Jim Simons’s Renaissance Technologies and Israel Englander’s Millennium Management.

Seeing as FLIR Systems, Inc. (NASDAQ:FLIR) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Principal Global Investors’s Columbus Circle Investors dropped the biggest position of all the hedgies followed by Insider Monkey, totaling about $49.1 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $5.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FLIR Systems, Inc. (NASDAQ:FLIR) but similarly valued. These stocks are Arrow Electronics, Inc. (NYSE:ARW), National Instruments Corporation (NASDAQ:NATI), Foot Locker, Inc. (NYSE:FL), and Carlisle Companies, Inc. (NYSE:CSL). All of these stocks’ market caps resemble FLIR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $531 million. That figure was $424 million in FLIR’s case. Foot Locker, Inc. (NYSE:FL) is the most popular stock in this table. On the other hand Arrow Electronics, Inc. (NYSE:ARW) is the least popular one with only 21 bullish hedge fund positions. FLIR Systems, Inc. (NASDAQ:FLIR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately FLIR wasn’t in this group. Hedge funds that bet on FLIR were disappointed as the stock returned 12.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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