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Were Hedge Funds Right About HNI Corp (HNI)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether HNI Corp (NYSE:HNI) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is HNI Corp (NYSE:HNI) a buy here? Prominent investors are taking a bullish view. The number of long hedge fund positions inched up by 3 in recent months. Our calculations also showed that HNI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). HNI was in 20 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with HNI positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the key hedge fund action regarding HNI Corp (NYSE:HNI).

How are hedge funds trading HNI Corp (NYSE:HNI)?

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the third quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in HNI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in HNI Corp (NYSE:HNI) was held by AQR Capital Management, which reported holding $17 million worth of stock at the end of September. It was followed by D E Shaw with a $16.1 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to HNI Corp (NYSE:HNI), around 0.56% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to HNI.

Now, some big names were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the most valuable position in HNI Corp (NYSE:HNI). Winton Capital Management had $2.8 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $1.2 million position during the quarter. The other funds with brand new HNI positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Mika Toikka’s AlphaCrest Capital Management, and Hoon Kim’s Quantinno Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HNI Corp (NYSE:HNI) but similarly valued. We will take a look at CorVel Corporation (NASDAQ:CRVL), G-III Apparel Group, Ltd. (NASDAQ:GIII), GreenSky, Inc. (NASDAQ:GSKY), and Arvinas, Inc. (NASDAQ:ARVN). This group of stocks’ market valuations resemble HNI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRVL 14 154650 0
GIII 19 119971 6
GSKY 12 36683 -4
ARVN 26 473211 14
Average 17.75 196129 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $73 million in HNI’s case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand GreenSky, Inc. (NASDAQ:GSKY) is the least popular one with only 12 bullish hedge fund positions. HNI Corp (NYSE:HNI) is not the most popular stock in this group but hedge fund interest is still above average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately HNI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HNI were disappointed as the stock returned -38.5% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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