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Were Hedge Right About Piling Into Fair Isaac Corporation (FICO)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Fair Isaac Corporation (NYSE:FICO) and determine whether the smart money was really smart about this stock.

Is Fair Isaac Corporation (NYSE:FICO) a buy, sell, or hold? Prominent investors were becoming less hopeful. The number of long hedge fund positions were trimmed by 4 in recent months. Our calculations also showed that FICO 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). FICO was in 41 hedge funds’ portfolios at the end of March. There were 45 hedge funds in our database with FICO holdings at the end of the previous quarter.

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

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Atterbury - Whetstone Capital

David Atterbury of Whetstone Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the recent hedge fund action encompassing Fair Isaac Corporation (NYSE:FICO).

Hedge fund activity in Fair Isaac Corporation (NYSE:FICO)

At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FICO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Melvin Capital Management held the most valuable stake in Fair Isaac Corporation (NYSE:FICO), which was worth $296.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $152.6 million worth of shares. Ako Capital, Valley Forge Capital, and Newbrook Capital Advisors 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 Valley Forge Capital allocated the biggest weight to Fair Isaac Corporation (NYSE:FICO), around 22.17% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, earmarking 14.05 percent of its 13F equity portfolio to FICO.

Judging by the fact that Fair Isaac Corporation (NYSE:FICO) has faced declining sentiment from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Aaron Cowen’s Suvretta Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $48.8 million in stock. Gregg Moskowitz’s fund, Interval Partners, also dumped its stock, about $19 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Fair Isaac Corporation (NYSE:FICO). These stocks are Elanco Animal Health Incorporated (NYSE:ELAN), NICE Ltd (NASDAQ:NICE), Gartner Inc (NYSE:IT), and Pinterest, Inc. (NYSE:PINS). This group of stocks’ market valuations are closest to FICO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELAN 26 340715 3
NICE 22 373814 3
IT 32 973145 6
PINS 38 410292 1
Average 29.5 524492 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $524 million. That figure was $1225 million in FICO’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand NICE Ltd (NASDAQ:NICE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Fair Isaac Corporation (NYSE:FICO) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FICO as the stock returned 35.9% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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