Fanhua Inc. (FANH): Hedge Funds Losing Interest

At the end of February we announced the arrival of the first US recession since 2009 and we predicted 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 Fanhua Inc. (NASDAQ:FANH).

Fanhua Inc. (NASDAQ:FANH) investors should pay attention to a decrease in hedge fund sentiment lately. Our calculations also showed that FANH 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the fresh hedge fund action surrounding Fanhua Inc. (NASDAQ:FANH).

What have hedge funds been doing with Fanhua Inc. (NASDAQ:FANH)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FANH over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in Fanhua Inc. (NASDAQ:FANH). D E Shaw has a $1.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $1.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include Ernest Chow and Jonathan Howe’s Sensato Capital Management, Ken Griffin’s Citadel Investment Group and Bruce Kovner’s Caxton Associates LP. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to Fanhua Inc. (NASDAQ:FANH), around 0.51% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to FANH.

Seeing as Fanhua Inc. (NASDAQ:FANH) has faced a decline in interest from hedge fund managers, logic holds that there exists a select few fund managers who sold off their positions entirely last quarter. Interestingly, Renaissance Technologies dumped the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $1 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fanhua Inc. (NASDAQ:FANH) but similarly valued. We will take a look at Palomar Holdings, Inc. (NASDAQ:PLMR), Vector Group Ltd (NYSE:VGR), Hostess Brands, Inc. (NASDAQ:TWNK), and Zymeworks Inc. (NYSE:ZYME). This group of stocks’ market caps resemble FANH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLMR 7 47406 -1
VGR 16 123143 -1
TWNK 30 165605 -7
ZYME 27 654899 3
Average 20 247763 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $4 million in FANH’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Palomar Holdings, Inc. (NASDAQ:PLMR) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Fanhua Inc. (NASDAQ:FANH) is even less popular than PLMR. Hedge funds dodged a bullet by taking a bearish stance towards FANH. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately FANH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); FANH investors were disappointed as the stock returned -5.2% during the second quarter (through the end of May) 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 so far in 2020.

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