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HCI Group Inc (HCI): Hedge Funds In Wait-and-See Mode

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of HCI Group Inc (NYSE:HCI) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in HCI Group Inc (NYSE:HCI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare HCI to other stocks including Lizhi Inc. (NASDAQ:LIZI), Computer Programs & Systems, Inc. (NASDAQ:CPSI), and Pzena Investment Management Inc (NYSE:PZN) to get a better sense of its popularity.

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

In the eyes of most stock holders, hedge funds are assumed to be underperforming, old financial tools of years past. While there are greater than 8000 funds with their doors open today, We look at the crème de la crème of this club, around 850 funds. Most estimates calculate that this group of people oversee most of all hedge funds’ total capital, and by tracking their top picks, Insider Monkey has unsheathed many investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped 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 .

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

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. Now we’re going to take a look at the latest hedge fund action surrounding HCI Group Inc (NYSE:HCI).

Hedge fund activity in HCI Group Inc (NYSE:HCI)

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HCI over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is HCI A Good Stock To Buy?

More specifically, Royce & Associates was the largest shareholder of HCI Group Inc (NYSE:HCI), with a stake worth $8.1 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $5.7 million. Millennium Management, GLG Partners, 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 Royce & Associates allocated the biggest weight to HCI Group Inc (NYSE:HCI), around 0.11% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to HCI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weld Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HCI Group Inc (NYSE:HCI) but similarly valued. These stocks are Lizhi Inc. (NASDAQ:LIZI), Computer Programs & Systems, Inc. (NASDAQ:CPSI), Pzena Investment Management Inc (NYSE:PZN), and Teekay Corporation (NYSE:TK). This group of stocks’ market valuations match HCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LIZI 1 355 1
CPSI 12 19417 -1
PZN 7 7192 0
TK 13 16997 -1
Average 8.25 10990 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $22 million in HCI’s case. Teekay Corporation (NYSE:TK) is the most popular stock in this table. On the other hand Lizhi Inc. (NASDAQ:LIZI) is the least popular one with only 1 bullish hedge fund positions. HCI Group Inc (NYSE:HCI) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 but beat the market by 15.5 percentage points. Unfortunately HCI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HCI were disappointed as the stock returned 15.9% during the same time period 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 many of these stocks already outperformed the market so far this year.

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