Hedge Funds Are Betting On Fortinet Inc (FTNT)

Asma UL Husna

Updated Sun, Dec 9, 2018, 6:04 PM

Is Fortinet Inc (NASDAQ:FTNT) 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, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Fortinet Inc (NASDAQ:FTNT) has experienced an increase in hedge fund sentiment lately. FTNT was in 28 hedge funds' portfolios at the end of the third quarter of 2018. There were 26 hedge funds in our database with FTNT positions at the end of the previous quarter. Our calculations also showed that FTNT isn't among the 30 most popular stocks among hedge funds.

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 the 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

We're going to take a look at the new hedge fund action encompassing Fortinet Inc (NASDAQ:FTNT).

What does the smart money think about Fortinet Inc (NASDAQ:FTNT)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FTNT over the last 13 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Jim Simons's Renaissance Technologies has the number one position in Fortinet Inc (NASDAQ:FTNT), worth close to $310.1 million, amounting to 0.3% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $190.7 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass John Overdeck and David Siegel's Two Sigma Advisors, Josh Resnick's Jericho Capital Asset Management and Cliff Asness's AQR Capital Management.

Now, specific money managers were breaking ground themselves. Jericho Capital Asset Management, managed by Josh Resnick, established the most outsized position in Fortinet Inc (NASDAQ:FTNT). Jericho Capital Asset Management had $93.3 million invested in the company at the end of the quarter. Lee Ainslie's Maverick Capital also initiated a $10.1 million position during the quarter. The following funds were also among the new FTNT investors: Mario Gabelli's GAMCO Investors, D. E. Shaw's D E Shaw, and Joe DiMenna's ZWEIG DIMENNA PARTNERS.

Let's also examine hedge fund activity in other stocks similar to Fortinet Inc (NASDAQ:FTNT). These stocks are Shopify Inc (NYSE:SHOP), Comerica Incorporated (NYSE:CMA), Discovery Communications Inc. (NASDAQ:DISCK), and Magellan Midstream Partners, L.P. (NYSE:MMP). This group of stocks' market values match FTNT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHOP,28,1260759,3 CMA,37,927907,-6 DISCK,34,1260560,4 MMP,14,73929,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $881 million. That figure was $1,047 million in FTNT's case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 14 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) 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. In this regard CMA might be a better candidate to consider a long position.

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

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