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Were Hedge Funds Right About Buying Fortune Brands Home & Security Inc (FBHS)?

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·6 min read
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In this article you are going to find out whether hedge funds think Fortune Brands Home & Security Inc (NYSE:FBHS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Fortune Brands Home & Security Inc (NYSE:FBHS) a splendid investment today? Prominent investors were getting more bullish. The number of long hedge fund positions moved up by 3 recently. Fortune Brands Home & Security Inc (NYSE:FBHS) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. Our calculations also showed that FBHS 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). There were 31 hedge funds in our database with FBHS holdings at the end of March.

Video: 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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to check out the key hedge fund action encompassing Fortune Brands Home & Security Inc (NYSE:FBHS).

How have hedgies been trading Fortune Brands Home & Security Inc (NYSE:FBHS)?

At Q2's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FBHS over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Phill Gross and Robert Atchinson's Adage Capital Management has the largest position in Fortune Brands Home & Security Inc (NYSE:FBHS), worth close to $80.5 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Holocene Advisors, managed by Brandon Haley, which holds a $74.4 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Cliff Asness's AQR Capital Management, Anand Parekh's Alyeska Investment Group and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Fortune Brands Home & Security Inc (NYSE:FBHS), around 3.22% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, designating 0.65 percent of its 13F equity portfolio to FBHS.

As aggregate interest increased, key hedge funds have jumped into Fortune Brands Home & Security Inc (NYSE:FBHS) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Fortune Brands Home & Security Inc (NYSE:FBHS). Alyeska Investment Group had $38 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $24.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Clint Carlson's Carlson Capital, Chuck Royce's Royce & Associates, and Matthew Hulsizer's PEAK6 Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Fortune Brands Home & Security Inc (NYSE:FBHS) but similarly valued. These stocks are NIO Limited (NYSE:NIO), Dr. Reddy's Laboratories Limited (NYSE:RDY), 10x Genomics, Inc. (NASDAQ:TXG), Crown Holdings, Inc. (NYSE:CCK), Fastly, Inc. (NYSE:FSLY), Cna Financial Corporation (NYSE:CNA), and NiSource Inc. (NYSE:NI). This group of stocks' market caps are similar to FBHS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NIO,30,567819,14 RDY,12,173335,1 TXG,19,313211,-1 CCK,51,1239713,-5 FSLY,27,1662391,5 CNA,12,48476,0 NI,21,300585,-6 Average,24.6,615076,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $615 million. That figure was $395 million in FBHS's case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 12 bullish hedge fund positions. Fortune Brands Home & Security Inc (NYSE:FBHS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FBHS is 63.8. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on FBHS as the stock returned 26.9% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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