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Is Financial Institutions, Inc. (FISI) Going to Burn These Hedge Funds?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Financial Institutions, Inc. (NASDAQ:FISI).

Financial Institutions, Inc. (NASDAQ:FISI) has experienced a decrease in enthusiasm from smart money recently. Our calculations also showed that FISI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the key hedge fund action regarding Financial Institutions, Inc. (NASDAQ:FISI).

How have hedgies been trading Financial Institutions, Inc. (NASDAQ:FISI)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FISI over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is FISI A Good Stock To Buy?

More specifically, Royce & Associates was the largest shareholder of Financial Institutions, Inc. (NASDAQ:FISI), with a stake worth $15.2 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $14.1 million. Arrowstreet Capital, D E Shaw, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Financial Institutions, Inc. (NASDAQ:FISI), around 0.14% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to FISI.

Judging by the fact that Financial Institutions, Inc. (NASDAQ:FISI) has faced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their positions entirely heading into Q4. Intriguingly, Cliff Asness’s AQR Capital Management dropped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $2.2 million in stock, and Paul Hondros’s AlphaOne Capital Partners was right behind this move, as the fund said goodbye to about $0.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Financial Institutions, Inc. (NASDAQ:FISI) but similarly valued. We will take a look at Marine Products Corp. (NYSE:MPX), Hemisphere Media Group Inc (NASDAQ:HMTV), Primo Water Corporation (NASDAQ:PRMW), and REX American Resources Corp (NYSE:REX). This group of stocks’ market valuations are similar to FISI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPX 5 15865 0
HMTV 7 36695 -1
PRMW 17 106864 5
REX 8 43699 0
Average 9.25 50781 1

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 $51 million. That figure was $39 million in FISI’s case. Primo Water Corporation (NASDAQ:PRMW) is the most popular stock in this table. On the other hand Marine Products Corp. (NYSE:MPX) is the least popular one with only 5 bullish hedge fund positions. Financial Institutions, Inc. (NASDAQ:FISI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FISI, though not to the same extent, as the stock returned 8% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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