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Were Hedge Funds Right About Flocking Into ForeScout Technologies, Inc. (FSCT) ?

Nina Todic

The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at ForeScout Technologies, Inc. (NASDAQ:FSCT) from the perspective of those elite funds.

ForeScout Technologies, Inc. (NASDAQ:FSCT) was in 23 hedge funds' portfolios at the end of the first quarter of 2019. FSCT has seen an increase in hedge fund interest lately. There were 17 hedge funds in our database with FSCT positions at the end of the previous quarter. Our calculations also showed that fsct isn't among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Let's take a peek at the key hedge fund action encompassing ForeScout Technologies, Inc. (NASDAQ:FSCT).

Hedge fund activity in ForeScout Technologies, Inc. (NASDAQ:FSCT)

At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSCT over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FSCT Positions

More specifically, Jericho Capital Asset Management was the largest shareholder of ForeScout Technologies, Inc. (NASDAQ:FSCT), with a stake worth $129.4 million reported as of the end of March. Trailing Jericho Capital Asset Management was Point72 Asset Management, which amassed a stake valued at $39 million. Moore Global Investments, D E Shaw, and North Run Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key money managers were leading the bulls' herd. D E Shaw, managed by D. E. Shaw, initiated the biggest position in ForeScout Technologies, Inc. (NASDAQ:FSCT). D E Shaw had $10.9 million invested in the company at the end of the quarter. Principal Global Investors's Columbus Circle Investors also initiated a $6.2 million position during the quarter. The following funds were also among the new FSCT investors: Peter Muller's PDT Partners, Josh Goldberg's G2 Investment Partners Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as ForeScout Technologies, Inc. (NASDAQ:FSCT) but similarly valued. We will take a look at Forward Air Corporation (NASDAQ:FWRD), HudBay Minerals Inc (NYSE:HBM), Avaya Holdings Corp. (NYSE:AVYA), and Itron, Inc. (NASDAQ:ITRI). This group of stocks' market values match FSCT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FWRD,15,102299,4 HBM,11,295270,-2 AVYA,40,427447,4 ITRI,15,415956,1 Average,20.25,310243,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $266 million in FSCT's case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand HudBay Minerals Inc (NYSE:HBM) is the least popular one with only 11 bullish hedge fund positions. ForeScout Technologies, Inc. (NASDAQ:FSCT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately FSCT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FSCT were disappointed as the stock returned -22.1% during the same 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 13 of these stocks already outperformed the market so far in Q2.

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

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