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Did Hedge Funds Make The Right Call On TechnipFMC plc (FTI) ?

Debasis Saha

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtTechnipFMC plc (NYSE:FTI) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is TechnipFMC plc (NYSE:FTI) an attractive investment now? Prominent investors were taking a bearish view. The number of long hedge fund positions dropped by 5 recently. Our calculations also showed that FTI 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.

[caption id="attachment_338852" align="aligncenter" width="400"] Richard S. Pzena of Pzena Investment Management[/caption]

Richard Pzena - Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. 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. Keeping this in mind we're going to check out the new hedge fund action surrounding TechnipFMC plc (NYSE:FTI).

What does smart money think about TechnipFMC plc (NYSE:FTI)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in FTI a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is FTI A Good Stock To Buy?

More specifically, Pzena Investment Management was the largest shareholder of TechnipFMC plc (NYSE:FTI), with a stake worth $82.4 million reported as of the end of September. Trailing Pzena Investment Management was Platinum Asset Management, which amassed a stake valued at $64.5 million. Antipodes Partners, D E Shaw, 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 Atlantic Investment Management allocated the biggest weight to TechnipFMC plc (NYSE:FTI), around 6.69% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, setting aside 4.43 percent of its 13F equity portfolio to FTI.

Judging by the fact that TechnipFMC plc (NYSE:FTI) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, worth about $31.9 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also cut its stock, about $10.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as TechnipFMC plc (NYSE:FTI) but similarly valued. These stocks are Ashland Global Holdings Inc.. (NYSE:ASH), NorthWestern Corporation (NYSE:NWE), Cameco Corporation (NYSE:CCJ), and Pan American Silver Corp. (NASDAQ:PAAS). This group of stocks' market caps are closest to FTI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASH,32,677314,2 NWE,19,125827,0 CCJ,24,267635,-4 PAAS,30,341386,0 Average,26.25,353041,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $395 million in FTI's case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand NorthWestern Corporation (NYSE:NWE) is the least popular one with only 19 bullish hedge fund positions. TechnipFMC plc (NYSE:FTI) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately FTI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FTI were disappointed as the stock returned 1.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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