Did Hedge Funds Make The Right Call On First Hawaiian, Inc. (FHB) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtFirst Hawaiian, Inc. (NASDAQ:FHB) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is First Hawaiian, Inc. (NASDAQ:FHB) going to take off soon? The smart money was turning bullish. The number of bullish hedge fund positions advanced by 3 in recent months. Our calculations also showed that FHB 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). FHB was in 21 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with FHB holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing First Hawaiian, Inc. (NASDAQ:FHB).

How are hedge funds trading First Hawaiian, Inc. (NASDAQ:FHB)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FHB over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in First Hawaiian, Inc. (NASDAQ:FHB) was held by Yacktman Asset Management, which reported holding $46.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $19.6 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to First Hawaiian, Inc. (NASDAQ:FHB), around 0.78% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to FHB.

Now, key money managers were breaking ground themselves. Yacktman Asset Management, managed by Donald Yacktman, assembled the most outsized position in First Hawaiian, Inc. (NASDAQ:FHB). Yacktman Asset Management had $46.9 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Minhua Zhang’s Weld Capital Management, and Jinghua Yan’s TwinBeech Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as First Hawaiian, Inc. (NASDAQ:FHB) but similarly valued. We will take a look at Gates Industrial Corporation plc (NYSE:GTES), CenterState Bank Corporation (NASDAQ:CSFL), CarGurus, Inc. (NASDAQ:CARG), and WNS (Holdings) Limited (NYSE:WNS). All of these stocks’ market caps are closest to FHB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $137 million in FHB’s case. CarGurus, Inc. (NASDAQ:CARG) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 8 bullish hedge fund positions. First Hawaiian, Inc. (NASDAQ:FHB) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately FHB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FHB were disappointed as the stock returned 3.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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