During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of First Horizon National Corporation (NYSE:FHN) and see how the stock is affected by the recent hedge fund activity.
Hedge fund interest in First Horizon National Corporation (NYSE:FHN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FHN to other stocks including Globus Medical Inc (NYSE:GMED), MSC Industrial Direct Co Inc (NYSE:MSM), and Wix.Com Ltd (NASDAQ:WIX) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the new hedge fund action regarding First Horizon National Corporation (NYSE:FHN).
How are hedge funds trading First Horizon National Corporation (NYSE:FHN)?
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FHN over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, EJF Capital was the largest shareholder of First Horizon National Corporation (NYSE:FHN), with a stake worth $70.4 million reported as of the end of September. Trailing EJF Capital was Diamond Hill Capital, which amassed a stake valued at $23.1 million. Huber Capital Management, Millennium Management, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that First Horizon National Corporation (NYSE:FHN) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers that elected to cut their positions entirely by the end of the third quarter. Interestingly, Daniel Johnson’s Gillson Capital dumped the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $8.8 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also said goodbye to its stock, about $8.5 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as First Horizon National Corporation (NYSE:FHN) but similarly valued. We will take a look at Globus Medical Inc (NYSE:GMED), MSC Industrial Direct Co Inc (NYSE:MSM), Wix.Com Ltd (NASDAQ:WIX), and Transocean Ltd (NYSE:RIG). This group of stocks’ market valuations match FHN’s market valuation.
|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 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $154 million in FHN’s case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand Globus Medical Inc (NYSE:GMED) is the least popular one with only 18 bullish hedge fund positions. First Horizon National Corporation (NYSE:FHN) 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 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 FHN wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); FHN investors were disappointed as the stock returned 11.6% 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.