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Were Hedge Funds Right About Piling Into Fidelity National Financial Inc (FNF)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Fidelity National Financial Inc (NYSE:FNF) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Fidelity National Financial Inc (NYSE:FNF) going to take off soon? Investors who are in the know were in an optimistic mood. The number of long hedge fund positions went up by 7 in recent months. Our calculations also showed that FNF isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action regarding Fidelity National Financial Inc (NYSE:FNF).

How are hedge funds trading Fidelity National Financial Inc (NYSE:FNF)?

Heading into the second quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in FNF a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

The largest stake in Fidelity National Financial Inc (NYSE:FNF) was held by AQR Capital Management, which reported holding $95.1 million worth of stock at the end of September. It was followed by D E Shaw with a $69.2 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Mason Capital Management allocated the biggest weight to Fidelity National Financial Inc (NYSE:FNF), around 3.4% of its 13F portfolio. One Fin Capital Management is also relatively very bullish on the stock, designating 2.2 percent of its 13F equity portfolio to FNF.

Consequently, specific money managers have been driving this bullishness. Lakewood Capital Management, managed by Anthony Bozza, created the largest position in Fidelity National Financial Inc (NYSE:FNF). Lakewood Capital Management had $11.8 million invested in the company at the end of the quarter. Kenneth Mario Garschina’s Mason Capital Management also initiated a $10.7 million position during the quarter. The other funds with brand new FNF positions are Joshua Nash’s Ulysses Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Vikas Lunia’s Lunia Capital.

Let’s check out hedge fund activity in other stocks similar to Fidelity National Financial Inc (NYSE:FNF). We will take a look at Cabot Oil & Gas Corporation (NYSE:COG), Iron Mountain Incorporated (NYSE:IRM), NRG Energy Inc (NYSE:NRG), and Americold Realty Trust (NYSE:COLD). This group of stocks’ market caps are similar to FNF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COG 37 469345 3
IRM 19 49061 2
NRG 38 859890 -4
COLD 25 275635 -1
Average 29.75 413483 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $386 million in FNF’s case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Fidelity National Financial Inc (NYSE:FNF) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FNF, though not to the same extent, as the stock returned 24.5% in Q2 and outperformed the market as well.

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