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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Focus Financial Partners Inc. (NASDAQ:FOCS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Focus Financial Partners Inc. (NASDAQ:FOCS) was in 12 hedge funds' portfolios at the end of December. FOCS investors should be aware of an increase in hedge fund sentiment lately. There were 11 hedge funds in our database with FOCS positions at the end of the previous quarter. Our calculations also showed that FOCS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the latest hedge fund action encompassing Focus Financial Partners Inc. (NASDAQ:FOCS).
What have hedge funds been doing with Focus Financial Partners Inc. (NASDAQ:FOCS)?
At Q4's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in FOCS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Centerbridge Partners held the most valuable stake in Focus Financial Partners Inc. (NASDAQ:FOCS), which was worth $26.6 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $5.1 million worth of shares. Millennium Management, Schonfeld Strategic Advisors, and Renaissance Technologies 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 Centerbridge Partners allocated the biggest weight to Focus Financial Partners Inc. (NASDAQ:FOCS), around 4.3% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to FOCS.
Now, key hedge funds were leading the bulls' herd. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), established the biggest position in Focus Financial Partners Inc. (NASDAQ:FOCS). Schonfeld Strategic Advisors had $3.4 million invested in the company at the end of the quarter. Stephen C. Freidheim's Cyrus Capital Partners also initiated a $1.1 million position during the quarter. The following funds were also among the new FOCS investors: Mika Toikka's AlphaCrest Capital Management and Dmitry Balyasny's Balyasny Asset Management.
Let's also examine hedge fund activity in other stocks similar to Focus Financial Partners Inc. (NASDAQ:FOCS). These stocks are Change Healthcare Inc. (NASDAQ:CHNG), Meritor Inc (NYSE:MTOR), AMTD International Inc. (NYSE:HKIB), and Otter Tail Corporation (NASDAQ:OTTR). This group of stocks' market caps match FOCS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHNG,25,311536,3 MTOR,29,412626,4 HKIB,1,17460,0 OTTR,11,79797,-4 Average,16.5,205355,0.75 [/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 $205 million. That figure was $47 million in FOCS's case. Meritor Inc (NYSE:MTOR) is the most popular stock in this table. On the other hand AMTD International Inc. (NYSE:HKIB) is the least popular one with only 1 bullish hedge fund positions. Focus Financial Partners Inc. (NASDAQ:FOCS) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately FOCS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FOCS investors were disappointed as the stock returned -34% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.