Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Capitol Federal Financial, Inc. (NASDAQ:CFFN) to find out whether it was one of their high conviction long-term ideas.
Is Capitol Federal Financial, Inc. (NASDAQ:CFFN) an excellent investment now? Hedge funds are getting more optimistic. The number of bullish hedge fund bets inched up by 2 in recent months. Our calculations also showed that cffn isn’t among the 30 most popular stocks among hedge funds. CFFN was in 12 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with CFFN holdings at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the new hedge fund action encompassing Capitol Federal Financial, Inc. (NASDAQ:CFFN).
What does the smart money think about Capitol Federal Financial, Inc. (NASDAQ:CFFN)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CFFN over the last 13 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Capitol Federal Financial, Inc. (NASDAQ:CFFN), with a stake worth $109.3 million reported as of the end of September. Trailing Renaissance Technologies was First Pacific Advisors LLC, which amassed a stake valued at $23 million. Impax Asset Management, Arrowstreet Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers have been driving this bullishness. Impax Asset Management, managed by Ian Simm, established the largest position in Capitol Federal Financial, Inc. (NASDAQ:CFFN). Impax Asset Management had $21.5 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also made a $0.1 million investment in the stock during the quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Capitol Federal Financial, Inc. (NASDAQ:CFFN) but similarly valued. We will take a look at ESCO Technologies Inc. (NYSE:ESE), Fanhua Inc. (NASDAQ:FANH), Portola Pharmaceuticals Inc (NASDAQ:PTLA), and Alexander’s, Inc. (NYSE:ALX). This group of stocks’ market valuations are closest to CFFN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESE | 6 | 6217 | 3 |
| FANH | 4 | 9984 | -1 |
| PTLA | 23 | 455027 | 5 |
| ALX | 8 | 57013 | 1 |
| Average | 10.25 | 132060 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $198 million in CFFN’s case. Portola Pharmaceuticals Inc (NASDAQ:PTLA) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 4 bullish hedge fund positions. Capitol Federal Financial, Inc. (NASDAQ:CFFN) 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. In this regard PTLA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
