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Did Hedge Funds Drop The Ball On Fidelity National Financial Inc (FNF)?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Fidelity National Financial Inc (NYSE:FNF) makes for a good investment right now.

Fidelity National Financial Inc (NYSE:FNF) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that FNF isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the new hedge fund action encompassing Fidelity National Financial Inc (NYSE:FNF).

How are hedge funds trading Fidelity National Financial Inc (NYSE:FNF)?

Heading into the third quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FNF over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

FNF_oct2019

Among these funds, AQR Capital Management held the most valuable stake in Fidelity National Financial Inc (NYSE:FNF), which was worth $80.2 million at the end of the second quarter. On the second spot was Nitorum Capital which amassed $67.8 million worth of shares. Moreover, D E Shaw, Citadel Investment Group, and Third Avenue Management were also bullish on Fidelity National Financial Inc (NYSE:FNF), allocating a large percentage of their portfolios to this stock.

Because Fidelity National Financial Inc (NYSE:FNF) has experienced a decline in interest from the smart money, logic holds that there lies a certain “tier” of hedgies who sold off their entire stakes by the end of the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, worth close to $15.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $13.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Fidelity National Financial Inc (NYSE:FNF). We will take a look at FactSet Research Systems Inc. (NYSE:FDS), Tiffany & Co. (NYSE:TIF), Sarepta Therapeutics Inc (NASDAQ:SRPT), and Lennox International Inc. (NYSE:LII). This group of stocks’ market valuations resemble FNF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FDS 19 345992 1
TIF 22 1455290 -8
SRPT 48 1466822 4
LII 21 120353 2
Average 27.5 847114 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $847 million. That figure was $326 million in FNF’s case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 19 bullish hedge fund positions. Fidelity National Financial Inc (NYSE:FNF) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on FNF as the stock returned 11% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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