Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Fathom Holdings Inc. (NASDAQ:FTHM)? The smart money sentiment can provide an answer to this question.
Is Fathom Holdings Inc. (NASDAQ:FTHM) ready to rally soon? Hedge funds were betting on the stock. The number of bullish hedge fund bets improved by 3 recently. Fathom Holdings Inc. (NASDAQ:FTHM) was in 3 hedge funds’ portfolios at the end of September. Our calculations also showed that FTHM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to review the recent hedge fund action surrounding Fathom Holdings Inc. (NASDAQ:FTHM).
What does smart money think about Fathom Holdings Inc. (NASDAQ:FTHM)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3 from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in FTHM 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.
The largest stake in Fathom Holdings Inc. (NASDAQ:FTHM) was held by Manatuck Hill Partners, which reported holding $2.5 million worth of stock at the end of September. It was followed by Skylands Capital with a $1.8 million position. The only other hedge fund that is bullish on the company was Precept Capital Management.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Manatuck Hill Partners, managed by Mark Broach, created the largest position in Fathom Holdings Inc. (NASDAQ:FTHM). Manatuck Hill Partners had $2.5 million invested in the company at the end of the quarter. Charles Paquelet’s Skylands Capital also made a $1.8 million investment in the stock during the quarter. The only other fund with a new position in the stock is Blair Baker’s Precept Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fathom Holdings Inc. (NASDAQ:FTHM) but similarly valued. We will take a look at Haynes International, Inc. (NASDAQ:HAYN), Alico, Inc. (NASDAQ:ALCO), PennantPark Investment Corp. (NASDAQ:PNNT), MICT, Inc. (NASDAQ:MICT), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Horizon Technology Finance Corp (NASDAQ:HRZN), and Fury Gold Mines Limited (NYSE:AUG). This group of stocks’ market caps match FTHM’s market cap.
|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 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $5 million in FTHM’s case. Haynes International, Inc. (NASDAQ:HAYN) is the most popular stock in this table. On the other hand MICT, Inc. (NASDAQ:MICT) is the least popular one with only 2 bullish hedge fund positions. Fathom Holdings Inc. (NASDAQ:FTHM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FTHM is 14.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on FTHM as the stock returned 30.1% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.