Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards FedNat Holding Co (NASDAQ:FNHC).
FedNat Holding Co (NASDAQ:FNHC) investors should be aware of a decrease in support from the world’s most elite money managers lately. FedNat Holding Co (NASDAQ:FNHC) was in 6 hedge funds’ portfolios at the end of March. The all time high for this statistic is 10. There were 7 hedge funds in our database with FNHC positions at the end of the fourth quarter. Our calculations also showed that FNHC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
Bernard Horn of Polaris Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the recent hedge fund action encompassing FedNat Holding Co (NASDAQ:FNHC).
Do Hedge Funds Think FNHC Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FNHC over the last 23 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in FedNat Holding Co (NASDAQ:FNHC), which was worth $4 million at the end of the fourth quarter. On the second spot was Polaris Capital Management which amassed $1.9 million worth of shares. D E Shaw, Arrowstreet Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to FedNat Holding Co (NASDAQ:FNHC), around 0.06% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.005 percent of its 13F equity portfolio to FNHC.
Due to the fact that FedNat Holding Co (NASDAQ:FNHC) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies that slashed their entire stakes by the end of the first quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners cut the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $0.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $0.1 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds by the end of the first quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as FedNat Holding Co (NASDAQ:FNHC) but similarly valued. These stocks are Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX), InspireMD Inc (NASDAQ:NSPR), Salem Media Group Inc. (NASDAQ:SALM), Allena Pharmaceuticals, Inc. (NASDAQ:ALNA), LENSAR, Inc. (NASDAQ:LNSR), CohBar, Inc. (NASDAQ:CWBR), and Emclaire Financial Corp (NASDAQ:EMCF). This group of stocks’ market valuations are closest to FNHC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ETTX | 2 | 1830 | -1 |
| NSPR | 3 | 3190 | -1 |
| SALM | 6 | 3579 | 5 |
| ALNA | 8 | 15824 | 1 |
| LNSR | 7 | 24076 | 0 |
| CWBR | 1 | 741 | -2 |
| EMCF | 2 | 595 | 0 |
| Average | 4.1 | 7119 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.1 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $7 million in FNHC’s case. Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) is the most popular stock in this table. On the other hand CohBar, Inc. (NASDAQ:CWBR) is the least popular one with only 1 bullish hedge fund positions. FedNat Holding Co (NASDAQ:FNHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FNHC is 57.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately FNHC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FNHC were disappointed as the stock returned -10.2% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Fednat Holding Co (NASDAQ:FNHC)
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Disclosure: None. This article was originally published at Insider Monkey.
