Were Hedge Funds Right About Dumping FMC Corporation (FMC)?
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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was FMC Corporation (NYSE:FMC).
Is FMC Corporation (NYSE:FMC) a superb investment right now? Prominent investors are getting less optimistic. The number of bullish hedge fund positions were cut by 4 in recent months. Our calculations also showed that FMC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). FMC was in 35 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 39 hedge funds in our database with FMC holdings at the end of the previous quarter.
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 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Crispin Odey of Odey Asset Management Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let's go over the fresh hedge fund action surrounding FMC Corporation (NYSE:FMC).
Hedge fund activity in FMC Corporation (NYSE:FMC)
At Q4's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in FMC a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in FMC Corporation (NYSE:FMC) was held by Glenview Capital, which reported holding $302.7 million worth of stock at the end of September. It was followed by Cardinal Capital with a $85.7 million position. Other investors bullish on the company included Thunderbird Partners, Odey Asset Management Group, and Skylands Capital. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to FMC Corporation (NYSE:FMC), around 5.01% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 4.19 percent of its 13F equity portfolio to FMC.
Judging by the fact that FMC Corporation (NYSE:FMC) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of fund managers that elected to cut their entire stakes last quarter. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $7.8 million in call options. Karim Abbadi and Edward McBride's fund, Centiva Capital, also cut its call options, about $7.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as FMC Corporation (NYSE:FMC) but similarly valued. We will take a look at Steris Plc (NYSE:STE), Varian Medical Systems, Inc. (NYSE:VAR), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Equity Lifestyle Properties, Inc. (NYSE:ELS). All of these stocks' market caps are closest to FMC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STE,33,699152,0 VAR,30,607160,1 ALNY,33,937654,3 ELS,23,480119,2 Average,29.75,681021,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $681 million. That figure was $571 million in FMC's case. Steris Plc (NYSE:STE) is the most popular stock in this table. On the other hand Equity Lifestyle Properties, Inc. (NYSE:ELS) is the least popular one with only 23 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately FMC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FMC were disappointed as the stock returned -28.9% during the first two and a half months of 2020 (through March 16th) 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 Q1.
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.
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