Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of FBL Financial Group, Inc. (NYSE:FFG).
Hedge fund interest in FBL Financial Group, Inc. (NYSE:FFG) 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 FFG to other stocks including Scorpio Tankers Inc. (NYSE:STNG), Range Resources Corp. (NYSE:RRC), and Chesapeake Utilities Corporation (NYSE:CPK) to get a better sense of its popularity.
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the latest hedge fund action regarding FBL Financial Group, Inc. (NYSE:FFG).
What does smart money think about FBL Financial Group, Inc. (NYSE:FFG)?
At Q2’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in FFG over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in FBL Financial Group, Inc. (NYSE:FFG) was held by Renaissance Technologies, which reported holding $4.5 million worth of stock at the end of March. It was followed by Royce & Associates with a $3.6 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Caxton Associates LP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. 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 Winton Capital Management).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as FBL Financial Group, Inc. (NYSE:FFG) but similarly valued. These stocks are Scorpio Tankers Inc. (NYSE:STNG), Range Resources Corp. (NYSE:RRC), Chesapeake Utilities Corporation (NYSE:CPK), and Cooper Tire & Rubber Company (NYSE:CTB). This group of stocks’ market caps are similar to FFG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $13 million in FFG’s case. Range Resources Corp. (NYSE:RRC) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks FBL Financial Group, Inc. (NYSE:FFG) is even less popular than CPK. Hedge funds dodged a bullet by taking a bearish stance towards FFG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FFG investors were disappointed as the stock returned -6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.