The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Fortinet Inc (NASDAQ:FTNT) from the perspective of those elite funds.
Hedge fund interest in Fortinet Inc (NASDAQ:FTNT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Tractor Supply Company (NASDAQ:TSCO), DexCom, Inc. (NASDAQ:DXCM), and Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) to gather more data points. Our calculations also showed that FTNT isn't among the 30 most popular stocks among hedge funds (see the video below). 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 go over the latest hedge fund action encompassing Fortinet Inc (NASDAQ:FTNT).
How have hedgies been trading Fortinet Inc (NASDAQ:FTNT)?
Heading into the third quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTNT over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Fortinet Inc (NASDAQ:FTNT), which was worth $332.6 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $272.4 million worth of shares. Moreover, Arrowstreet Capital, Two Sigma Advisors, and Park West Asset Management were also bullish on Fortinet Inc (NASDAQ:FTNT), allocating a large percentage of their portfolios to this stock.
Due to the fact that Fortinet Inc (NASDAQ:FTNT) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies who sold off their positions entirely last quarter. It's worth mentioning that David Costen Haley's HBK Investments dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $7.4 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund sold off about $3.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Fortinet Inc (NASDAQ:FTNT) but similarly valued. These stocks are Tractor Supply Company (NASDAQ:TSCO), DexCom, Inc. (NASDAQ:DXCM), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), and Akamai Technologies, Inc. (NASDAQ:AKAM). This group of stocks' market valuations are similar to FTNT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSCO,35,652759,2 DXCM,30,670521,-3 KOF,9,494995,0 AKAM,33,841204,5 Average,26.75,664870,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $665 million. That figure was $1152 million in FTNT's case. Tractor Supply Company (NASDAQ:TSCO) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 9 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) 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. 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 FTNT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FTNT were disappointed as the stock returned -0.1% 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.