While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding FedNat Holding Co (NASDAQ:FNHC).
Is FedNat Holding Co (FNHC) a good stock to buy now? Money managers were in a pessimistic mood. The number of long hedge fund bets shrunk by 1 recently. FedNat Holding Co (NASDAQ:FNHC) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that FNHC 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 15 best blue chip stocks 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. With all of this in mind we’re going to view the new hedge fund action surrounding FedNat Holding Co (NASDAQ:FNHC).
Hedge fund activity in FedNat Holding Co (NASDAQ:FNHC)
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in FNHC a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in FedNat Holding Co (NASDAQ:FNHC) was held by Renaissance Technologies, which reported holding $5.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $0.5 million position. Other investors bullish on the company included GLG Partners, D E Shaw, and Winton Capital Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to FedNat Holding Co (NASDAQ:FNHC), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to FNHC.
Because FedNat Holding Co (NASDAQ:FNHC) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies that decided to sell off their entire stakes last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the biggest position of the 750 funds followed by Insider Monkey, totaling close to $0.3 million in stock, and Thomas Bailard’s Bailard Inc was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as FedNat Holding Co (NASDAQ:FNHC) but similarly valued. We will take a look at Abeona Therapeutics Inc (NASDAQ:ABEO), Magal Security Systems Ltd. (NASDAQ:MAGS), Jianpu Technology Inc. (NYSE:JT), Prudential Bancorp, Inc. (NASDAQ:PBIP), ClearPoint Neuro Inc. (NASDAQ:CLPT), Concord Medical Services Hldg Ltd (NYSE:CCM), and Perma-Fix Environmental Services, Inc. (NASDAQ:PESI). This group of stocks’ market values are closest to FNHC’s market value.
|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 3.9 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $7 million in FNHC’s case. Abeona Therapeutics Inc (NASDAQ:ABEO) is the most popular stock in this table. On the other hand Concord Medical Services Hldg Ltd (NYSE:CCM) is the least popular one with only 1 bullish hedge fund positions. FedNat Holding Co (NASDAQ:FNHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FNHC is 48.1. 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. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately FNHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FNHC were disappointed as the stock returned -12.7% since the end of September (through 12/2) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.