It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like FRP Holdings Inc (NASDAQ:FRPH).
FRP Holdings Inc (NASDAQ:FRPH) has seen a decrease in support from the world’s most elite money managers of late. Our calculations also showed that FRPH 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Let’s go over the recent hedge fund action encompassing FRP Holdings Inc (NASDAQ:FRPH).
Hedge fund activity in FRP Holdings Inc (NASDAQ:FRPH)
Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in FRPH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in FRP Holdings Inc (NASDAQ:FRPH). Royce & Associates has a $26.3 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Martin Whitman of Third Avenue Management, with a $7.3 million position; 0.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of Mark Travis’s Intrepid Capital Management, Eric Sprott’s Sprott Asset Management and Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified FRPH as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks similar to FRP Holdings Inc (NASDAQ:FRPH). We will take a look at Mercantile Bank Corporation (NASDAQ:MBWM), B. Riley Financial, Inc. (NASDAQ:RILY), Zix Corporation (NASDAQ:ZIXI), and Cheetah Mobile Inc (NYSE:CMCM). This group of stocks’ market valuations resemble FRPH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MBWM | 7 | 28326 | 0 |
| RILY | 10 | 106495 | 0 |
| ZIXI | 14 | 74900 | -7 |
| CMCM | 6 | 5545 | 2 |
| Average | 9.25 | 53817 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $46 million in FRPH’s case. Zix Corporation (NASDAQ:ZIXI) is the most popular stock in this table. On the other hand Cheetah Mobile Inc (NYSE:CMCM) is the least popular one with only 6 bullish hedge fund positions. FRP Holdings Inc (NASDAQ:FRPH) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FRPH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FRPH investors were disappointed as the stock returned -13.9% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
