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Here’s What Hedge Funds Think About Axos Financial, Inc. (AX)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Axos Financial, Inc. (NYSE:AX).

Axos Financial, Inc. (NYSE:AX) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that AX isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

We’re going to take a look at the recent hedge fund action encompassing Axos Financial, Inc. (NYSE:AX).

How have hedgies been trading Axos Financial, Inc. (NYSE:AX)?

Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in AX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AX_jun2019

According to Insider Monkey’s hedge fund database, Basswood Capital, managed by Matthew Lindenbaum, holds the most valuable position in Axos Financial, Inc. (NYSE:AX). Basswood Capital has a $13.9 million position in the stock, comprising 0.9% of its 13F portfolio. The second most bullish fund manager is Royce & Associates, led by Chuck Royce, holding a $12.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass John Thiessen’s Vertex One Asset Management, D. E. Shaw’s D E Shaw and John Osterweis’s Osterweis Capital Management.

Due to the fact that Axos Financial, Inc. (NYSE:AX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings last quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, worth about $5.1 million in stock. Jim Simons’s fund, Renaissance Technologies, also sold off its stock, about $4.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Axos Financial, Inc. (NYSE:AX). We will take a look at Summit Materials Inc (NYSE:SUM), SJW Corp. (NYSE:SJW), Tower Semiconductor Ltd. (NASDAQ:TSEM), and Cannae Holdings, Inc. (NYSE:CNNE). All of these stocks’ market caps are closest to AX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUM 22 480411 2
SJW 15 172638 -5
TSEM 12 258420 -4
CNNE 24 256097 1
Average 18.25 291892 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $61 million in AX’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand Tower Semiconductor Ltd. (NASDAQ:TSEM) is the least popular one with only 12 bullish hedge fund positions. Axos Financial, Inc. (NYSE:AX) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AX investors were disappointed as the stock returned -3% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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

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