Should You Avoid FBR & Co (FBRC)?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong sometimes, as in the case of some of their top picks from the index like Micron and Anadarko. The data, though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is FBR & Co (NASDAQ:FBRC) worth your attention right now? Money managers are in a bearish mood. The number of bullish hedge fund positions retreated by 2 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Sientra Inc (NASDAQ:SIEN), GSV Capital Corp (NASDAQ:GSVC), and Five Star Quality Care, Inc. (NYSE:FVE) to gather more data points.

To the average investor, there are dozens of indicators investors put to use to analyze publicly traded companies. A pair of the most underrated indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outpace the S&P 500 by a healthy margin (see the details here).

Now, let’s review the recent action encompassing FBR & Co (NASDAQ:FBRC).

How have hedgies been trading FBR & Co (NASDAQ:FBRC)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a slump of 25% from the previous quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Matthew Hulsizer’s PEAK6 Capital Management has the biggest position in FBR & Co (NASDAQ:FBRC), worth close to $5 million, comprising less than 0.1% of its total 13F portfolio. On PEAK6 Capital Management’s heels is Royce & Associates, managed by Chuck Royce, which holds a $4.6 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish comprise D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management and J. Alan Reid, Jr.’s Forward Management.

Seeing as FBR & Co (NASDAQ:FBRC) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Jim Simons’s Renaissance Technologies dumped the largest stake of the 700 funds watched by Insider Monkey, comprising an estimated $0.6 million in stock. Cliff Asness’s fund, AQR Capital Management, also dumped its stock, about $0.3 million worth of FBRC shares. These moves are interesting, as total hedge fund interest was cut by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as FBR & Co (NASDAQ:FBRC) but similarly valued. These stocks are Sientra Inc (NASDAQ:SIEN), GSV Capital Corp (NASDAQ:GSVC), Five Star Quality Care, Inc. (NYSE:FVE), and Exa Corp (NASDAQ:EXA). All of these stocks’ market caps match FBRC’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $11 million in FBRC’s case. Five Star Quality Care, Inc. (NYSE:FVE) is the most popular stock in this table. On the other hand FBR & Co (NASDAQ:FBRC) and GSV Capital Corp (NASDAQ:GSVC) linger behind, with only 6 bullish hedge fund positions. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.