We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Financial Institutions, Inc. (NASDAQ:FISI).
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 32 percentage points since May 2014 through March 12, 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.
Let’s review the new hedge fund action surrounding Financial Institutions, Inc. (NASDAQ:FISI).
What does the smart money think about Financial Institutions, Inc. (NASDAQ:FISI)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FISI over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Financial Institutions, Inc. (NASDAQ:FISI), with a stake worth $10.1 million reported as of the end of December. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $9.8 million. GLG Partners, AQR Capital Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Financial Institutions, Inc. (NASDAQ:FISI) has experienced declining sentiment from the smart money, logic holds that there was a specific group of hedgies that elected to cut their full holdings last quarter. Intriguingly, Fred Cummings’s Elizabeth Park Capital Management sold off the biggest stake of the 700 funds watched by Insider Monkey, worth close to $3 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dropped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Financial Institutions, Inc. (NASDAQ:FISI) but similarly valued. We will take a look at Vishay Precision Group Inc (NYSE:VPG), Osmotica Pharmaceuticals plc (NASDAQ:OSMT), Kimball Electronics Inc (NASDAQ:KE), and Quanterix Corporation (NASDAQ:QTRX). This group of stocks’ market caps are closest to FISI’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 9 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $36 million in FISI’s case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand Kimball Electronics Inc (NASDAQ:KE) is the least popular one with only 7 bullish hedge fund positions. Financial Institutions, Inc. (NASDAQ:FISI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FISI wasn’t nearly as popular as these 15 stock and hedge funds that were betting on FISI were disappointed as the stock returned 8.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.