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 Fitbit Inc (NYSE:FIT).
Is Fitbit Inc (NYSE:FIT) a bargain? Hedge funds are in a bearish mood. The number of long hedge fund bets were trimmed by 5 in recent months. Our calculations also showed that FIT 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' 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.
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 take a glance at the key hedge fund action surrounding Fitbit Inc (NYSE:FIT).
What does smart money think about Fitbit Inc (NYSE:FIT)?
At Q2's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FIT over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Fitbit Inc (NYSE:FIT). Renaissance Technologies has a $33.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $15.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish include Philippe Laffont's Coatue Management, D. E. Shaw's D E Shaw and Israel Englander's Millennium Management.
Due to the fact that Fitbit Inc (NYSE:FIT) has witnessed falling interest from the smart money, it's easy to see that there is a sect of hedge funds who sold off their full holdings by the end of the second quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising about $23.9 million in stock, and Zachary Miller's Parian Global Management was right behind this move, as the fund said goodbye to about $6.4 million worth. These moves are important to note, as total hedge fund interest fell by 5 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Fitbit Inc (NYSE:FIT) but similarly valued. We will take a look at Kenon Holdings Ltd. (NYSE:KEN), Brigham Minerals, Inc. (NYSE:MNRL), Loral Space & Communications Inc. (NASDAQ:LORL), and KEMET Corporation (NYSE:KEM). This group of stocks' market valuations are similar to FIT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KEN,1,1980,-1 MNRL,15,79480,15 LORL,16,513824,-3 KEM,18,146880,-1 Average,12.5,185541,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $81 million in FIT's case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 1 bullish hedge fund positions. Fitbit Inc (NYSE:FIT) 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 FIT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FIT were disappointed as the stock returned -13.4% 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.