It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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 Fluor Corporation (NYSE:FLR).
Fluor Corporation (NYSE:FLR) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that FLR isn't among the 30 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' 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's check out the latest hedge fund action encompassing Fluor Corporation (NYSE:FLR).
Hedge fund activity in Fluor Corporation (NYSE:FLR)
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in FLR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Two Sigma Advisors was the largest shareholder of Fluor Corporation (NYSE:FLR), with a stake worth $74.3 million reported as of the end of March. Trailing Two Sigma Advisors was Ariel Investments, which amassed a stake valued at $49.8 million. Renaissance Technologies, D E Shaw, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, some big names have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, assembled the biggest position in Fluor Corporation (NYSE:FLR). Renaissance Technologies had $42.6 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $10.6 million investment in the stock during the quarter. The following funds were also among the new FLR investors: Nick Niell's Arrowgrass Capital Partners, T Boone Pickens's BP Capital, and Brandon Haley's Holocene Advisors.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Fluor Corporation (NYSE:FLR) but similarly valued. We will take a look at Teradata Corporation (NYSE:TDC), United Therapeutics Corporation (NASDAQ:UTHR), Chemed Corporation (NYSE:CHE), and Semiconductor Manufacturing International Corporation (NYSE:SMI). All of these stocks' market caps match FLR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDC,20,294027,-1 UTHR,21,1050522,-2 CHE,21,416451,-3 SMI,4,8945,0 Average,16.5,442486,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $442 million. That figure was $311 million in FLR's case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand Semiconductor Manufacturing International Corporation (NYSE:SMI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Fluor Corporation (NYSE:FLR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately FLR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FLR were disappointed as the stock returned -21.8% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.