Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about ForeScout Technologies, Inc. (NASDAQ:FSCT) in this article.
ForeScout Technologies, Inc. (NASDAQ:FSCT) investors should pay attention to an increase in hedge fund sentiment of late. Our calculations also showed that FSCT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_260193" align="aligncenter" width="450"] Keith Meister of Corvex Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the fresh hedge fund action encompassing ForeScout Technologies, Inc. (NASDAQ:FSCT).
What have hedge funds been doing with ForeScout Technologies, Inc. (NASDAQ:FSCT)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FSCT over the last 17 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Jericho Capital Asset Management held the most valuable stake in ForeScout Technologies, Inc. (NASDAQ:FSCT), which was worth $126.8 million at the end of the third quarter. On the second spot was Corvex Capital which amassed $62.2 million worth of shares. Point72 Asset Management, North Run Capital, and Altai Capital 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 North Run Capital allocated the biggest weight to ForeScout Technologies, Inc. (NASDAQ:FSCT), around 10.83% of its 13F portfolio. Altai Capital is also relatively very bullish on the stock, dishing out 9.66 percent of its 13F equity portfolio to FSCT.
Now, key money managers were breaking ground themselves. JS Capital, managed by Jonathan Soros, created the largest position in ForeScout Technologies, Inc. (NASDAQ:FSCT). JS Capital had $6.6 million invested in the company at the end of the quarter. Charles Frumberg's Emancipation Capital also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new FSCT investors: Ken Griffin's Citadel Investment Group, Brandon Haley's Holocene Advisors, and Ken Griffin's Citadel Investment Group.
Let's now review hedge fund activity in other stocks similar to ForeScout Technologies, Inc. (NASDAQ:FSCT). These stocks are Cavco Industries, Inc. (NASDAQ:CVCO), Frontline Ltd (NYSE:FRO), Prestige Consumer Healthcare Inc. (NYSE:PBH), and BMC Stock Holdings, Inc. (NASDAQ:BMCH). This group of stocks' market valuations match FSCT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVCO,19,171104,3 FRO,14,99604,1 PBH,17,73601,2 BMCH,27,287010,2 Average,19.25,157830,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $281 million in FSCT's case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand Frontline Ltd (NYSE:FRO) is the least popular one with only 14 bullish hedge fund positions. ForeScout Technologies, Inc. (NASDAQ:FSCT) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FSCT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FSCT investors were disappointed as the stock returned -5.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.