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Hedge Funds Are Dumping Heartland Financial USA Inc (HTLF)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Heartland Financial USA Inc (NASDAQ:HTLF).

Is Heartland Financial USA Inc (NASDAQ:HTLF) ready to rally soon? Money managers are becoming less hopeful. The number of long hedge fund positions went down by 2 in recent months. Our calculations also showed that HTLF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you’d ask most stock holders, hedge funds are seen as worthless, old investment tools of the past. While there are greater than 8000 funds with their doors open at the moment, Our researchers choose to focus on the masters of this club, around 850 funds. It is estimated that this group of investors shepherd the lion’s share of the hedge fund industry’s total capital, and by tracking their top stock picks, Insider Monkey has discovered a few investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded 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 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding Heartland Financial USA Inc (NASDAQ:HTLF).

What does smart money think about Heartland Financial USA Inc (NASDAQ:HTLF)?

Heading into the first quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HTLF over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Heartland Financial USA Inc (NASDAQ:HTLF) was held by Millennium Management, which reported holding $6.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $2.6 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and AQR Capital Management. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Heartland Financial USA Inc (NASDAQ:HTLF), around 0.16% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to HTLF.

Due to the fact that Heartland Financial USA Inc (NASDAQ:HTLF) has faced declining sentiment from the smart money, it’s safe to say that there exists a select few funds who sold off their entire stakes heading into Q4. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $5 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dumped about $0.9 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Heartland Financial USA Inc (NASDAQ:HTLF). These stocks are Onto Innovation Inc. (NYSE:ONTO), Comfort Systems USA, Inc. (NYSE:FIX), New York Mortgage Trust, Inc. (NASDAQ:NYMT), and Dillard’s, Inc. (NYSE:DDS). This group of stocks’ market caps resemble HTLF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ONTO 14 167125 -4
FIX 24 137894 1
NYMT 15 71598 4
DDS 20 346150 -2
Average 18.25 180692 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $15 million in HTLF’s case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand Onto Innovation Inc. (NYSE:ONTO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Heartland Financial USA Inc (NASDAQ:HTLF) is even less popular than ONTO. Hedge funds dodged a bullet by taking a bearish stance towards HTLF. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately HTLF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HTLF investors were disappointed as the stock returned -40.3% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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