The financial sector was one of the worst performing sectors in the first quarter. While the S&P 500 managed to end the quarter up with marginal gains, the S&P 500 Financials index lost 5.6% during the same period. Due to this underperformance, it was natural for hedge funds to reduce their exposure to the sector during that period. However, some stocks within the financial sector saw their popularity among hedge funds decline much more than their peers and in this post we are going to focus on five such stocks.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
Euronet Worldwide, Inc. (NASDAQ:EEFT)
– Investors with long positions (as of March 31) : 17
– Aggregate value of Investors’ holdings (as of March 31): $1.84 billion
The first stock in our list is Euronet Worldwide, Inc. (NASDAQ:EEFT). During the first quarter, the number of hedge funds tracked by us long Euronet Worldwide, Inc. (NASDAQ:EEFT) declined by 13 and the aggregate value of their holdings in it fell by nearly $36 million. Shares of the electronic payments provider fell heavily when the company came out with its fourth quarter results in early-February. However, they have rallied ever since and are currently trading up 8.50% year-to-date and very close to their lifetime highs. Following the better-than-expected first quarter numbers the company reported recently, on April 27, analysts at Avondale Partners reiterated their ‘Market Outperform’ rating on the stock and also upped their price target on it to $84 from $80. Funds that bucked the trend and added to their stake in Euronet Worldwide, Inc. (NASDAQ:EEFT) during the first quarter included George Mccabe‘s Portolan Capital Management, which increased its holding by 15% to 291,318 shares.
Realogy Holdings Corp (NYSE:RLGY)
– Investors with long positions (as of March 31) : 39
– Aggregate value of Investors’ holdings (as of March 31): $1.9 billion
While the ownership of Realogy Holdings Corp (NYSE:RLGY) among funds covered by us came down significantly by over 20% during the first quarter, the aggregate value of hedge funds’ holdings in it suffered only a marginal decline of 5.11% during that period. Realogy Holdings Corp (NYSE:RLGY)’s stock had recouped nearly all of the losses it suffered at the beginning of 2016 by April, but it again fell drastically at the beginning of this month in anticipation of the company’s first quarter earnings. Owing mostly to that decline, it is currently trading down over 10% year-to-date. For its fiscal 2016 first quarter, the company reported a per share loss of $0.12 on revenue of $1.13 billion versus analysts’ estimate of a per share loss of $0.11 on revenue of $1.13 billion. Billionaire John Paulson‘s Paulson & Co didn’t make any changes to its stake in Realogy Holdings Corp during the first quarter and continued to hold 5.26 million shares of the company at the end of that period.