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Were Hedge Funds Right About Snapping Up HCI Group, Inc. (HCI)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of HCI Group, Inc. (NYSE:HCI) based on that data.

Is HCI Group, Inc. (NYSE:HCI) a cheap investment right now? Prominent investors are betting on the stock. The number of bullish hedge fund positions advanced by 2 in recent months. Our calculations also showed that HCI isn’t among the 30 most popular stocks among hedge funds (see the video below). HCI was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with HCI holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a gander at the fresh hedge fund action regarding HCI Group, Inc. (NYSE:HCI).

Hedge fund activity in HCI Group, Inc. (NYSE:HCI)

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCI over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with HCI Positions

Among these funds, Royce & Associates held the most valuable stake in HCI Group, Inc. (NYSE:HCI), which was worth $7 million at the end of the second quarter. On the second spot was GLG Partners which amassed $3.7 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Arrowgrass Capital Partners were also bullish on HCI Group, Inc. (NYSE:HCI), allocating a large percentage of their portfolios to this stock.

Now, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, established the biggest position in HCI Group, Inc. (NYSE:HCI). Millennium Management had $2.1 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks similar to HCI Group, Inc. (NYSE:HCI). We will take a look at Synchronoss Technologies, Inc. (NASDAQ:SNCR), COMSCORE, Inc. (NASDAQ:SCOR), West Bancorporation, Inc. (NASDAQ:WTBA), and Home Bancorp, Inc. (NASDAQ:HBCP). All of these stocks’ market caps are similar to HCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNCR 8 34919 -4
SCOR 17 82124 3
WTBA 4 8432 2
HBCP 2 8930 -1
Average 7.75 33601 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $20 million in HCI’s case. COMSCORE, Inc. (NASDAQ:SCOR) is the most popular stock in this table. On the other hand Home Bancorp, Inc. (NASDAQ:HBCP) is the least popular one with only 2 bullish hedge fund positions. HCI Group, Inc. (NYSE:HCI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on HCI, though not to the same extent, as the stock returned 4.9% during the third quarter and outperformed the market as well.

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

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