Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Universal Insurance Holdings, Inc. (NYSEAMEX:UVE).
Universal Insurance Holdings, Inc. (NYSEAMEX:UVE) was in 15 hedge funds’ portfolios at the end of the third quarter of 2016. UVE has seen a decrease in activity from the world’s largest hedge funds recently. There were 19 hedge funds in our database with UVE holdings at the end of the previous quarter. At the end of this article we will also compare UVE to other stocks including National Presto Industries Inc. (NYSE:NPK), LGI Homes Inc (NASDAQ:LGIH), and Retrophin Inc (NASDAQ:RTRX) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading Universal Insurance Holdings, Inc. (NYSEAMEX:UVE)?
Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 21% decline from one quarter earlier, as hedge fund ownership continues to slide. There were a total of 20 hedge funds with a bullish position in UVE at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Capital Returns Management, led by Ron Bobman, holds the largest position in Universal Insurance Holdings, Inc. (NYSEAMEX:UVE). Capital Returns Management has a $14 million position in the stock, comprising 6.6% of its 13F portfolio. Sitting at the No. 2 spot is McKinley Capital Management, led by Robert B. Gillam, holding a $5.2 million position. Remaining peers that hold long positions comprise John Overdeck and David Siegel’s Two Sigma Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Since Universal Insurance Holdings, Inc. (NYSEAMEX:UVE) has experienced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Christopher R. Hansen’s Valiant Capital cashed in the biggest stake of the 700 funds followed by Insider Monkey, worth about $11 million in stock. Jacob Gottlieb’s fund, Visium Asset Management, also cut its stock, about $6.7 million worth.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Universal Insurance Holdings, Inc. (NYSEAMEX:UVE) but similarly valued. We will take a look at National Presto Industries Inc. (NYSE:NPK), LGI Homes Inc (NASDAQ:LGIH), Retrophin Inc (NASDAQ:RTRX), and Rent-A-Center Inc (NASDAQ:RCII). This group of stocks’ market caps are closest to UVE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $42 million in UVE’s case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand LGI Homes Inc (NASDAQ:LGIH) is the least popular one with only 10 bullish hedge fund positions. Universal Insurance Holdings, Inc. (NYSEAMEX:UVE) 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. In this regard RTRX might be a better candidate to consider taking a long position in.