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Heartland Financial USA Inc (HTLF): Hedge Funds Turning Bearish

In this article you are going to find out whether hedge funds think Heartland Financial USA Inc (NASDAQ:HTLF) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Heartland Financial USA Inc (NASDAQ:HTLF) a buy here? Investors who are in the know are taking a pessimistic view. The number of long hedge fund bets shrunk by 2 in recent months. Our calculations also showed that HTLF 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.

To the average investor there are a lot of formulas shareholders can use to grade their stock investments. A pair of the most useful formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outperform the broader indices by a significant amount (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 take a gander at the latest hedge fund action regarding Heartland Financial USA Inc (NASDAQ:HTLF).

What have hedge funds been doing with Heartland Financial USA Inc (NASDAQ:HTLF)?

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HTLF over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Heartland Financial USA Inc (NASDAQ:HTLF), with a stake worth $2.3 million reported as of the end of September. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $1.5 million. Two Sigma Advisors, Quantinno Capital, and Engineers Gate Manager 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 Quantinno Capital allocated the biggest weight to Heartland Financial USA Inc (NASDAQ:HTLF), around 0.28% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to HTLF.

Judging by the fact that Heartland Financial USA Inc (NASDAQ:HTLF) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few funds that elected to cut their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $6.3 million in stock. Renaissance Technologies, also sold off its stock, about $2.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Heartland Financial USA Inc (NASDAQ:HTLF) but similarly valued. These stocks are James River Group Holdings Ltd (NASDAQ:JRVR), Aurora Cannabis Inc. (NYSE:ACB), Tricida, Inc. (NASDAQ:TCDA), and Kaiser Aluminum Corp. (NASDAQ:KALU). This group of stocks’ market values resemble HTLF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JRVR 13 72712 3
ACB 9 12761 -3
TCDA 24 462077 0
KALU 16 75036 -1
Average 15.5 155647 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $6 million in HTLF’s case. Tricida, Inc. (NASDAQ:TCDA) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Heartland Financial USA Inc (NASDAQ:HTLF) is even less popular than ACB. Hedge funds dodged a bullet by taking a bearish stance towards HTLF. 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 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately HTLF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HTLF investors were disappointed as the stock returned 14.3% during the second quarter (through June 10th) 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.