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Is First Hawaiian, Inc. (FHB) Going to Burn These Hedge Funds?

We can judge whether First Hawaiian, Inc. (NASDAQ:FHB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

First Hawaiian, Inc. (NASDAQ:FHB) was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. FHB has experienced a decrease in enthusiasm from smart money recently. There were 23 hedge funds in our database with FHB holdings at the end of the previous quarter. Our calculations also showed that FHB isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

John Overdeck of Two Sigma

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 glance at the fresh hedge fund action regarding First Hawaiian, Inc. (NASDAQ:FHB).

How have hedgies been trading First Hawaiian, Inc. (NASDAQ:FHB)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FHB over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with FHB Positions

More specifically, Citadel Investment Group was the largest shareholder of First Hawaiian, Inc. (NASDAQ:FHB), with a stake worth $65.9 million reported as of the end of March. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $34.2 million. Two Sigma Advisors, Arrowstreet Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that First Hawaiian, Inc. (NASDAQ:FHB) has faced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their full holdings by the end of the second quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $4.4 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund dropped about $2.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as First Hawaiian, Inc. (NASDAQ:FHB) but similarly valued. We will take a look at Spirit Airlines Inc. (NYSE:SAVE), Bank of Hawaii Corporation (NYSE:BOH), Helen of Troy Limited (NASDAQ:HELE), and GrafTech International Ltd. (NYSE:EAF). All of these stocks’ market caps resemble FHB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAVE 31 302404 -3
BOH 12 87202 0
HELE 20 152715 -1
EAF 27 246790 3
Average 22.5 197278 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $271 million in FHB’s case. Spirit Airlines Inc. (NYSE:SAVE) is the most popular stock in this table. On the other hand Bank of Hawaii Corporation (NYSE:BOH) is the least popular one with only 12 bullish hedge fund positions. First Hawaiian, Inc. (NASDAQ:FHB) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on FHB, though not to the same extent, as the stock returned 4.3% during the third quarter and outperformed the market.

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

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