Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Homeowners Choice Inc (NYSE:HCI) to find out whether it was one of their high conviction long-term ideas.
Is Homeowners Choice Inc (NYSE:HCI) the right pick for your portfolio? Hedge funds are getting less bullish. The number of bullish hedge fund bets fell by 2 recently. HCI was in 9 hedge funds’ portfolios at the end of the third quarter of 2015. There were 11 hedge funds in our database with HCI holdings at the end of the previous quarter. At the end of this article we will also compare HCI to other stocks including Lakeland Bancorp, Inc. (NASDAQ:LBAI), Eldorado Resorts Inc (NASDAQ:ERI), and Green Plains Partners LP (NASDAQ:GPP) to get a better sense of its popularity.
In the eyes of most shareholders, hedge funds are viewed as worthless, old financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, We choose to focus on the crème de la crème of this club, about 700 funds. These hedge fund managers administer bulk of all hedge funds’ total capital, and by watching their matchless picks, Insider Monkey has identified several investment strategies that have historically outstripped Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.
With all of this in mind, we’re going to view the recent action encompassing Homeowners Choice Inc (NYSE:HCI).
What does the smart money think about Homeowners Choice Inc (NYSE:HCI)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Homeowners Choice Inc (NYSE:HCI). Royce & Associates has an $1.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Blue Mountain Capital, led by Andrew Feldstein and Stephen Siderow, holding an $1.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and John Fichthorn’s Dialectic Capital Management.
Due to the fact that Homeowners Choice Inc (NYSE:HCI) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there were a few money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Peter Muller’s PDT Partners cut the largest stake of all the hedgies monitored by Insider Monkey, valued at about $1.5 million in stock. Adam Wright and Gary Kohler’s fund, Blue Clay Capital, also dumped its stock, about $0.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Homeowners Choice Inc (NYSE:HCI) but similarly valued. We will take a look at Lakeland Bancorp, Inc. (NASDAQ:LBAI), Eldorado Resorts Inc (NASDAQ:ERI), Green Plains Partners LP (NASDAQ:GPP), and Overstock.com, Inc. (NASDAQ:OSTK). This group of stocks’ market values are closest to HCI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $7 million in HCI’s case. Overstock.com, Inc. (NASDAQ:OSTK) is the most popular stock in this table, while the least popular one is Green Plains Partners LP (NASDAQ:GPP). In comparison Homeowners Choice Inc (NYSE:HCI) is not the most nor the least popular stock in this particular group. Nevertheless, investors’ interest for this stock is still below the average, which may imply it is not a good stock to buy. Therefore, we’d rather spend our time researching stocks that hedge funds are piling on, such as OSTK and ERI in this group.