Hedge fund managers like David Einhorn, Bill Ackman, 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: Flagstar Bancorp Inc (NYSE:FBC).
Flagstar Bancorp Inc (NYSE:FBC) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. FBC was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. There were 14 hedge funds in our database with FBC positions at the end of the previous quarter. Our calculations also showed that FBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the key hedge fund action regarding Flagstar Bancorp Inc (NYSE:FBC).
What does smart money think about Flagstar Bancorp Inc (NYSE:FBC)?
At Q2’s end, 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. Below, you can check out the change in hedge fund sentiment towards FBC over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Flagstar Bancorp Inc (NYSE:FBC) was held by Renaissance Technologies, which reported holding $17.8 million worth of stock at the end of March. It was followed by D E Shaw with a $7.3 million position. Other investors bullish on the company included Second Curve Capital, Maverick Capital, and Millennium Management.
Now, key hedge funds have jumped into Flagstar Bancorp Inc (NYSE:FBC) headfirst. Maverick Capital, managed by Lee Ainslie, initiated the most valuable position in Flagstar Bancorp Inc (NYSE:FBC). Maverick Capital had $5.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $3.9 million investment in the stock during the quarter. The other funds with brand new FBC positions are Daniel Johnson’s Gillson Capital, Steve Cohen’s Point72 Asset Management, and Thomas Bailard’s Bailard Inc.
Let’s check out hedge fund activity in other stocks similar to Flagstar Bancorp Inc (NYSE:FBC). These stocks are Pretium Resources Inc (NYSE:PVG), Bottomline Technologies (de), Inc. (NASDAQ:EPAY), First Merchants Corporation (NASDAQ:FRME), and NGL Energy Partners LP (NYSE:NGL). This group of stocks’ market valuations are similar to FBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PVG | 22 | 93797 | 1 |
| EPAY | 16 | 72602 | 1 |
| FRME | 10 | 94703 | -3 |
| NGL | 4 | 40263 | 0 |
| Average | 13 | 75341 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $64 million in FBC’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Flagstar Bancorp Inc (NYSE:FBC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on FBC as the stock returned 12.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
