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Is FireEye Inc (FEYE) Going to Burn These Hedge Funds?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like FireEye Inc (NASDAQ:FEYE).

FireEye Inc (NASDAQ:FEYE) was in 29 hedge funds' portfolios at the end of June. FEYE has seen an increase in enthusiasm from smart money in recent months. There were 27 hedge funds in our database with FEYE holdings at the end of the previous quarter. Our calculations also showed that FEYE isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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 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.

Lee Ainslie MAVERICK CAPITAL

Unlike former hedge manager, Dr. Steve Sjuggerud, 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 recent hedge fund action encompassing FireEye Inc (NASDAQ:FEYE).

How have hedgies been trading FireEye Inc (NASDAQ:FEYE)?

Heading into the third quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FEYE over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FEYE_oct2019

The largest stake in FireEye Inc (NASDAQ:FEYE) was held by Citadel Investment Group, which reported holding $80.1 million worth of stock at the end of March. It was followed by Alyeska Investment Group with a $50.9 million position. Other investors bullish on the company included Fisher Asset Management, Renaissance Technologies, and Two Sigma Advisors.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Osterweis Capital Management, managed by John Osterweis, assembled the most outsized position in FireEye Inc (NASDAQ:FEYE). Osterweis Capital Management had $15.2 million invested in the company at the end of the quarter. Seymour Sy Kaufman and Michael Stark's Crosslink Capital also made a $10.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Cynthia Paul's Lynrock Lake, Sander Gerber's Hudson Bay Capital Management, and Lee Ainslie's Maverick Capital.

Let's now review hedge fund activity in other stocks similar to FireEye Inc (NASDAQ:FEYE). We will take a look at WNS (Holdings) Limited (NYSE:WNS), Everbridge, Inc. (NASDAQ:EVBG), Proto Labs Inc (NYSE:PRLB), and Solaredge Technologies Inc (NASDAQ:SEDG). This group of stocks' market values are similar to FEYE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WNS,16,205494,1 EVBG,28,537005,-2 PRLB,9,22516,-2 SEDG,23,145921,1 Average,19,227734,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $346 million in FEYE's case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks FireEye Inc (NASDAQ:FEYE) 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 FEYE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FEYE were disappointed as the stock returned -9.9% 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.

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