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Hedge Funds Cautiously Watching First Western Financial, Inc. (MYFW)

In this article you are going to find out whether hedge funds think First Western Financial, Inc. (NASDAQ:MYFW) 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.

First Western Financial, Inc. (NASDAQ:MYFW) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of March. At the end of this article we will also compare MYFW to other stocks including Mackinac Financial Corporation (NASDAQ:MFNC), Anworth Mortgage Asset Corporation (NYSE:ANH), and Pixelworks, Inc. (NASDAQ:PXLW) to get a better sense of its popularity.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium 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. Keeping this in mind let’s go over the new hedge fund action surrounding First Western Financial, Inc. (NASDAQ:MYFW).

How have hedgies been trading First Western Financial, Inc. (NASDAQ:MYFW)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MYFW over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is MYFW A Good Stock To Buy?

Among these funds, Elizabeth Park Capital Management held the most valuable stake in First Western Financial, Inc. (NASDAQ:MYFW), which was worth $5.6 million at the end of the third quarter. On the second spot was Fourthstone LLC which amassed $1.3 million worth of shares. Mendon Capital Advisors, Millennium Management, and ExodusPoint Capital 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 Elizabeth Park Capital Management allocated the biggest weight to First Western Financial, Inc. (NASDAQ:MYFW), around 4.27% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, setting aside 1.18 percent of its 13F equity portfolio to MYFW.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the first quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as First Western Financial, Inc. (NASDAQ:MYFW) but similarly valued. We will take a look at Mackinac Financial Corporation (NASDAQ:MFNC), Anworth Mortgage Asset Corporation (NYSE:ANH), Pixelworks, Inc. (NASDAQ:PXLW), and Galectin Therapeutics Inc. (NASDAQ:GALT). This group of stocks’ market values match MYFW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFNC 5 8683 1
ANH 10 12358 -4
PXLW 8 7919 1
GALT 3 190 -1
Average 6.5 7288 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $8 million in MYFW’s case. Anworth Mortgage Asset Corporation (NYSE:ANH) is the most popular stock in this table. On the other hand Galectin Therapeutics Inc. (NASDAQ:GALT) is the least popular one with only 3 bullish hedge fund positions. First Western Financial, Inc. (NASDAQ:MYFW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately MYFW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MYFW investors were disappointed as the stock returned -8.2% during the second quarter 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 in 2020.

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