We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Fortive Corporation (NYSE:FTV) and determine whether hedge funds skillfully traded this stock.
Fortive Corporation (NYSE:FTV) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 35 hedge funds' portfolios at the end of the second quarter of 2020. Our calculations also showed that FTV isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare FTV to other stocks including China Telecom Corporation Limited (NYSE:CHA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and Ball Corporation (NYSE:BLL) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a gander at the fresh hedge fund action surrounding Fortive Corporation (NYSE:FTV).
What does smart money think about Fortive Corporation (NYSE:FTV)?
At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in FTV a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Viking Global held the most valuable stake in Fortive Corporation (NYSE:FTV), which was worth $592.7 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $205.2 million worth of shares. Citadel Investment Group, Select Equity Group, and Alyeska Investment Group 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 Appian Way Asset Management allocated the biggest weight to Fortive Corporation (NYSE:FTV), around 5.87% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, setting aside 3.32 percent of its 13F equity portfolio to FTV.
Due to the fact that Fortive Corporation (NYSE:FTV) has experienced falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedgies that decided to sell off their positions entirely last quarter. At the top of the heap, Daniel S. Och's OZ Management cut the largest investment of the "upper crust" of funds monitored by Insider Monkey, totaling about $20.2 million in stock. D. E. Shaw's fund, D E Shaw, also dropped its stock, about $18.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Fortive Corporation (NYSE:FTV) but similarly valued. We will take a look at China Telecom Corporation Limited (NYSE:CHA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Ball Corporation (NYSE:BLL), Kellogg Company (NYSE:K), Incyte Corporation (NASDAQ:INCY), Tencent Music Entertainment Group (NYSE:TME), and Liberty Broadband Corp (NASDAQ:LBRDA). This group of stocks' market caps are similar to FTV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHA,5,30145,0 BBVA,11,164405,3 BLL,38,767527,-3 K,33,418366,-4 INCY,29,4432332,-11 TME,30,538341,5 LBRDA,22,718343,-4 Average,24,1009923,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $1372 million in FTV's case. Ball Corporation (NYSE:BLL) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Fortive Corporation (NYSE:FTV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTV is 73.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FTV wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FTV were disappointed as the stock returned 6.7% 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.