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Did Hedge Funds Drop The Ball On Flagstar Bancorp Inc (FBC) ?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

Flagstar Bancorp Inc (NYSE:FBC) has experienced a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that FBC isn’t among the 30 most popular stocks among hedge funds.

If you’d ask most stock holders, hedge funds are viewed as worthless, old investment tools of years past. While there are over 8000 funds in operation at present, We choose to focus on the moguls of this group, around 750 funds. These money managers have their hands on bulk of all hedge funds’ total capital, and by paying attention to their top picks, Insider Monkey has brought to light a few investment strategies that have historically outstripped the market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Steven Tananbaum - GoldenTree Asset Management

We’re going to take a glance at the key hedge fund action surrounding Flagstar Bancorp Inc (NYSE:FBC).

Hedge fund activity in Flagstar Bancorp Inc (NYSE:FBC)

At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FBC over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FBC_apr2019

Among these funds, EJF Capital held the most valuable stake in Flagstar Bancorp Inc (NYSE:FBC), which was worth $36 million at the end of the fourth quarter. On the second spot was GoldenTree Asset Management which amassed $22.8 million worth of shares. Moreover, Renaissance Technologies, Basswood Capital, and Millennium Management were also bullish on Flagstar Bancorp Inc (NYSE:FBC), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Flagstar Bancorp Inc (NYSE:FBC) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers who were dropping their positions entirely in the third quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $3.9 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dropped about $3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Flagstar Bancorp Inc (NYSE:FBC). These stocks are Vicor Corp (NASDAQ:VICR), Euronav NV (NYSE:EURN), Heartland Financial USA Inc (NASDAQ:HTLF), and NBT Bancorp Inc. (NASDAQ:NBTB). This group of stocks’ market values resemble FBC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VICR 15 48779 -1
EURN 11 130449 -5
HTLF 7 13228 1
NBTB 9 7733 1
Average 10.5 50047 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $107 million in FBC’s case. Vicor Corp (NASDAQ:VICR) is the most popular stock in this table. On the other hand Heartland Financial USA Inc (NASDAQ:HTLF) is the least popular one with only 7 bullish hedge fund positions. Flagstar Bancorp Inc (NYSE:FBC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on FBC as the stock returned 36% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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