Do Hedge Funds Love United Fire Group, Inc. (UFCS)?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at United Fire Group, Inc. (NASDAQ:UFCS) from the perspective of those successful funds.

United Fire Group, Inc. (NASDAQ:UFCS) investors should be aware of a decrease in enthusiasm from smart money of late. UFCS was in 9 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with UFCS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AAR Corp. (NYSE:AIR), Boston Private Financial Hldg Inc (NASDAQ:BPFH), and Phibro Animal Health Corp (NASDAQ:PAHC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading United Fire Group, Inc. (NASDAQ:UFCS)?

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 18% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in UFCS at the beginning of this year. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management has the number one position in United Fire Group, Inc. (NASDAQ:UFCS), worth close to $8.3 million. On AQR Capital Management’s heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $6.9 million position. Some other hedge funds and institutional investors with similar optimism comprise Roger Ibbotson’s Zebra Capital Management, Renaissance Technologies, one of the biggest hedge funds in the world, and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. Intriguingly, Robert B. Gillam’s McKinley Capital Management cashed in the biggest investment of all the investors studied by Insider Monkey, comprising close to $3 million in stock, and Glenn Russell Dubin’s Highbridge Capital Management was right behind this move, as the fund sold off about $1 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to United Fire Group, Inc. (NASDAQ:UFCS). These stocks are AAR Corp. (NYSE:AIR), Boston Private Financial Hldg Inc (NASDAQ:BPFH), Phibro Animal Health Corp (NASDAQ:PAHC), and Delek US Holdings, Inc. (NYSE:DK). This group of stocks’ market valuations resemble UFCS’s market valuation.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $22 million in UFCS’s case. AAR Corp. (NYSE:AIR) is the most popular stock in this table. On the other hand Phibro Animal Health Corp (NASDAQ:PAHC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks United Fire Group, Inc. (NASDAQ:UFCS) is even less popular than PAHC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None