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Hedge Funds Still Bullish On Hallmark Financial Services, Inc. (HALL)

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 Hallmark Financial Services, Inc. (NASDAQ:HALL) based on that data and determine whether they were really smart about the stock.

Hallmark Financial Services, Inc. (NASDAQ:HALL) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare HALL to other stocks including Catabasis Pharmaceuticals Inc (NASDAQ:CATB), Research Solutions, Inc (NASDAQ:RSSS), and NN, Inc. (NASDAQ:NNBR) to get a better sense of its popularity.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

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 let’s analyze the recent hedge fund action surrounding Hallmark Financial Services, Inc. (NASDAQ:HALL).

What have hedge funds been doing with Hallmark Financial Services, Inc. (NASDAQ:HALL)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in HALL a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Hallmark Financial Services, Inc. (NASDAQ:HALL), which was worth $2.9 million at the end of the third quarter. On the second spot was Cove Street Capital which amassed $2.3 million worth of shares. AQR Capital Management, Royce & Associates, and Intrinsic Edge 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 Cove Street Capital allocated the biggest weight to Hallmark Financial Services, Inc. (NASDAQ:HALL), around 0.48% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to HALL.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. 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 Ancora Advisors).

Let’s check out hedge fund activity in other stocks similar to Hallmark Financial Services, Inc. (NASDAQ:HALL). We will take a look at Catabasis Pharmaceuticals Inc (NASDAQ:CATB), Research Solutions, Inc (NASDAQ:RSSS), NN, Inc. (NASDAQ:NNBR), and Aquestive Therapeutics, Inc. (NASDAQ:AQST). This group of stocks’ market caps match HALL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CATB 7 2611 1
RSSS 1 22697 1
NNBR 7 9567 -2
AQST 9 8380 -6
Average 6 10814 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $9 million in HALL’s case. Aquestive Therapeutics, Inc. (NASDAQ:AQST) is the most popular stock in this table. On the other hand Research Solutions, Inc (NASDAQ:RSSS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Hallmark Financial Services, Inc. (NASDAQ:HALL) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately HALL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HALL were disappointed as the stock returned -13.6% 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.