Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like Franco-Nevada Corporation (NYSE:FNV).
If you'd ask most shareholders, hedge funds are perceived as underperforming, outdated financial vehicles of years past. While there are over 8,000 funds trading today, Our researchers hone in on the masters of this group, about 700 funds. These money managers shepherd the majority of all hedge funds' total asset base, and by shadowing their inimitable equity investments, Insider Monkey has unearthed a number of investment strategies that have historically beaten the S&P 500 index. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by 6 percentage points annually since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's view the recent hedge fund action surrounding Franco-Nevada Corporation (NYSE:FNV).
Hedge fund activity in Franco-Nevada Corporation (NYSE:FNV)
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FNV over the last 13 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Franco-Nevada Corporation (NYSE:FNV), with a stake worth $178 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $64.3 million. Horizon Asset Management, Royce & Associates, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key hedge funds were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, initiated the most outsized position in Franco-Nevada Corporation (NYSE:FNV). PEAK6 Capital Management had $8.8 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also initiated a $0.9 million position during the quarter.
Let's also examine hedge fund activity in other stocks similar to Franco-Nevada Corporation (NYSE:FNV). These stocks are Kansas City Southern (NYSE:KSU), IDEX Corporation (NYSE:IEX), Braskem SA (NYSE:BAK), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks' market caps are closest to FNV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSU,24,363531,-2 IEX,23,357504,5 BAK,13,401115,-4 MLM,33,1484382,0 Average,23.25,651633,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $366 million in FNV's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 13 bullish hedge fund positions. Franco-Nevada Corporation (NYSE:FNV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard MLM might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.