"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on FMC Corporation (NYSE:FMC) in order to identify whether reputable and successful top money managers continue to believe in its potential.
FMC Corporation (NYSE:FMC) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 36 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as InterContinental Hotels Group PLC (NYSE:IHG), Western Gas Partners, LP (NYSE:WES), and Textron Inc. (NYSE:TXT) to gather more data points. Our calculations also showed that FMC 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.
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 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.
[caption id="attachment_26869" align="aligncenter" width="600"]
Larry Robbins of Glenview 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 take a peek at the fresh hedge fund action surrounding FMC Corporation (NYSE:FMC).
What does smart money think about FMC Corporation (NYSE:FMC)?
Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in FMC a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Glenview Capital held the most valuable stake in FMC Corporation (NYSE:FMC), which was worth $375.6 million at the end of the third quarter. On the second spot was Thunderbird Partners which amassed $133.7 million worth of shares. Cardinal Capital, Millennium Management, and AQR Capital Management 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 Thunderbird Partners allocated the biggest weight to FMC Corporation (NYSE:FMC), around 18.11% of its portfolio. Corsair Capital Management is also relatively very bullish on the stock, setting aside 4.82 percent of its 13F equity portfolio to FMC.
Due to the fact that FMC Corporation (NYSE:FMC) has witnessed falling interest from hedge fund managers, we can see that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Brandon Haley's Holocene Advisors said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $57.3 million in stock, and Javier Velazquez's Albar Capital was right behind this move, as the fund cut about $11.9 million worth. These moves 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 FMC Corporation (NYSE:FMC) but similarly valued. These stocks are InterContinental Hotels Group PLC (NYSE:IHG), Western Gas Partners, LP (NYSE:WES), Textron Inc. (NYSE:TXT), and Jack Henry & Associates, Inc. (NASDAQ:JKHY). All of these stocks' market caps are similar to FMC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IHG,7,29788,3 WES,10,107648,1 TXT,23,658405,0 JKHY,18,181183,0 Average,14.5,244256,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $789 million in FMC's case. Textron Inc. (NYSE:TXT) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks FMC Corporation (NYSE:FMC) is more popular among hedge funds. 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. Hedge funds were also right about betting on FMC as the stock returned 11.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
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