Should You Buy The Phoenix Companies, Inc. (PNX)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by using superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30th, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in The Phoenix Companies, Inc. (NYSE:PNX).

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The Phoenix Companies, Inc. (NYSE:PNX) shareholders have witnessed a level amount of enthusiasm from smart money in recent months. PNX was in five hedge funds’ portfolios at the end of September. There were five hedge funds in our database with PNX holdings at the end of the previous quarter. At the end of this article we will also compare PNX to other stocks including Transenterix Inc (NYSEMKT:TRXC), POZEN Inc. (NASDAQ:POZN), and TransGlobe Energy Corporation (USA) (NASDAQ:TGA) to get a better sense of its popularity.

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If you’d ask most traders, hedge funds are viewed as unimportant, outdated financial vehicles of the past. While there are greater than 8,000 funds in operation at the moment, Hedge fund experts at Insider Monkey look at the crème de la crème of this group, about 700 funds. It is estimated that this group of investors administer the majority of the smart money’s total capital, and by shadowing their highest performing stock picks, Insider Monkey has come up with a number of investment strategies that have historically exceeded the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in its back tests.

Keeping this in mind, we’re going to review the recent action regarding The Phoenix Companies, Inc. (NYSE:PNX).

How are hedge funds trading The Phoenix Companies, Inc. (NYSE:PNX)?

At the end of the third quarter, a total of five of the hedge funds tracked by Insider Monkey were long in this stock, which was unchanged from the previous quarter. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes substantially.

Of the funds tracked by Insider Monkey, Toscafund Asset Management, managed by Martin Hughes, holds the number one position in The Phoenix Companies, Inc. (NYSE:PNX). Toscafund Asset Management has a $16.7 million position in the stock, comprising 6.1% of its 13F portfolio. The second-most bullish hedge fund manager is Arbiter Partners Capital Management, led by Paul J. Isaac, holding a $0.9 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish include David E. Shaw’s D E Shaw, Israel Englander’s Millennium Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Since The Phoenix Companies, Inc. (NYSE:PNX) has experienced level interest from the smart money, we can see that there was a specific group of fund managers that also slashed their entire stakes last quarter. At the top of the heap, Jim Simons’ Renaissance Technologies dropped the largest investment of all the hedgies monitored by Insider Monkey, valued at about $0.7 million in stock. Cliff Asness’ fund, AQR Capital Management, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to The Phoenix Companies, Inc. (NYSE:PNX). We will take a look at Transenterix Inc (NYSEMKT:TRXC), POZEN Inc. (NASDAQ:POZN), TransGlobe Energy Corporation (USA) (NASDAQ:TGA), and Primo Water Corporation (NASDAQ:PRMW). This group of stocks’ market caps match PNX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRXC 10 50201 -3
POZN 18 55185 3
TGA 5 2789 -2
PRMW 10 43233 3

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That eclipsed the mere $18 million in PNX shares that were held by the investors that we track. POZEN Inc. (NASDAQ:POZN) is the most popular stock in this table. On the other hand TransGlobe Energy Corporation (USA) (NASDAQ:TGA) is the least popular one with only five bullish hedge fund positions. Compared to these stocks The Phoenix Companies, Inc. (NYSE:PNX) is even less popular than TGA. Considering that hedge funds aren’t fond of this stock and haven’t invested much money in it, 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.