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Here’s What Hedge Funds Think About Capitol Investment Corp. IV (CIC)

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Capitol Investment Corp. IV (NYSE:CIC).

Is Capitol Investment Corp. IV (NYSE:CIC) a worthy investment now? Money managers are taking an optimistic view. The number of long hedge fund positions advanced by 1 recently. Our calculations also showed that CIC 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.

Jeffrey Tannenbaum, Fir Tree

We’re going to take a look at the new hedge fund action regarding Capitol Investment Corp. IV (NYSE:CIC).

What have hedge funds been doing with Capitol Investment Corp. IV (NYSE:CIC)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CIC over the last 15 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

CIC_jun2019

The largest stake in Capitol Investment Corp. IV (NYSE:CIC) was held by Alyeska Investment Group, which reported holding $18.4 million worth of stock at the end of March. It was followed by Arrowgrass Capital Partners with a $18.3 million position. Other investors bullish on the company included Fir Tree, Highbridge Capital Management, and Governors Lane.

Now, key money managers were leading the bulls’ herd. Weiss Asset Management, managed by Andrew Weiss, assembled the largest position in Capitol Investment Corp. IV (NYSE:CIC). Weiss Asset Management had $1 million invested in the company at the end of the quarter.

Let’s now review hedge fund activity in other stocks similar to Capitol Investment Corp. IV (NYSE:CIC). These stocks are American Outdoor Brands Corporation (NASDAQ:AOBC), Ethan Allen Interiors Inc. (NYSE:ETH), Donnelley Financial Solutions, Inc. (NYSE:DFIN), and Just Energy Group, Inc. (NYSE:JE). This group of stocks’ market valuations are closest to CIC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AOBC 15 81359 1
ETH 17 68127 2
DFIN 14 52851 -5
JE 10 20148 1
Average 14 55621 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $169 million in CIC’s case. Ethan Allen Interiors Inc. (NYSE:ETH) is the most popular stock in this table. On the other hand Just Energy Group, Inc. (NYSE:JE) is the least popular one with only 10 bullish hedge fund positions. Capitol Investment Corp. IV (NYSE:CIC) 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 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 CIC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CIC were disappointed as the stock returned 0.5% during the same 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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