How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hanmi Financial Corp (NASDAQ:HAFC) and determine whether hedge funds had an edge regarding this stock.
Is Hanmi Financial Corp (NASDAQ:HAFC) the right pick for your portfolio? Hedge funds were in a bearish mood. The number of long hedge fund positions were cut by 2 recently. Our calculations also showed that HAFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HAFC was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with HAFC holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most stock holders, hedge funds are assumed to be slow, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open today, We look at the bigwigs of this club, around 850 funds. It is estimated that this group of investors watch over the lion’s share of the smart money’s total capital, and by paying attention to their best equity investments, Insider Monkey has spotted numerous investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action surrounding Hanmi Financial Corp (NASDAQ:HAFC).
How have hedgies been trading Hanmi Financial Corp (NASDAQ:HAFC)?
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HAFC over the last 18 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Hanmi Financial Corp (NASDAQ:HAFC). Renaissance Technologies has a $9.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $3.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish comprise Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Fourthstone LLC allocated the biggest weight to Hanmi Financial Corp (NASDAQ:HAFC), around 0.33% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to HAFC.
Because Hanmi Financial Corp (NASDAQ:HAFC) has witnessed falling interest from the smart money, it’s safe to say that there were a few fund managers that elected to cut their positions entirely heading into Q4. Intriguingly, Bruce Kovner’s Caxton Associates LP sold off the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $0.6 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hanmi Financial Corp (NASDAQ:HAFC) but similarly valued. We will take a look at Quanex Building Products Corporation (NYSE:NX), Experience Investment Corp. (NASDAQ:EXPC), Sorrento Therapeutics Inc (NASDAQ:SRNE), and Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX). This group of stocks’ market values match HAFC’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $19 million in HAFC’s case. Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) is the most popular stock in this table. On the other hand Sorrento Therapeutics Inc (NASDAQ:SRNE) is the least popular one with only 5 bullish hedge fund positions. Hanmi Financial Corp (NASDAQ:HAFC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately HAFC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HAFC investors were disappointed as the stock returned -9.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.