Do Hedge Funds Love Charter Financial Corp (CHFN)?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Charter Financial Corp (NASDAQ:CHFN).

Charter Financial Corp (NASDAQ:CHFN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of September. At the end of this article we will also compare CHFN to other stocks, including Blue Bird Corp (NASDAQ:BLBD), Tribune Publishing Co (NYSE:TPUB), and Peregrine Pharmaceuticals (NASDAQ:PPHM) to get a better sense of its popularity.

In the eyes of most market participants, hedge funds are assumed to be unimportant, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, Our researchers hone in on the moguls of this club, around 700 funds. Most estimates calculate that this group of people preside over bulk of the hedge fund industry’s total asset base, and by monitoring their inimitable stock picks, Insider Monkey has come up with many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, let’s take a look at the latest action surrounding Charter Financial Corp (NASDAQ:CHFN).

How have hedgies been trading Charter Financial Corp (NASDAQ:CHFN)?

Heading into Q4, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Private Capital Management, managed by Gregg J. Powers, holds the number one position in Charter Financial Corp (NASDAQ:CHFN). Private Capital Management has an $11.1 million position in the stock, comprising 1.3% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds an $11 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Amy Minella’s Cardinal Capital, Paul J. Isaac’s Arbiter Partners Capital Management and Peter Muller’s PDT Partners.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Gruss Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Nine Chapters Capital Management).

Let’s also examine hedge fund activity in other stocks similar to Charter Financial Corp (NASDAQ:CHFN). We will take a look at Blue Bird Copr (NASDAQ:BLBD), Tribune Publishing Co (NYSE:TPUB), Peregrine Pharmaceuticals (NASDAQ:PPHM), and Black Diamond Inc (NASDAQ:BDE). This group of stocks’ market valuations are closest to CHFN’s market valuation.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $30 million, close to the $31 million in CHFN’s case. Tribune Publishing Co (NYSE:TPUB) is the most popular stock in this table. On the other hand Blue Bird Copr (NASDAQ:BLBD) is the least popular one with only 7 bullish hedge fund positions. Charter Financial Corp (NASDAQ:CHFN) 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 TPUB might be a better candidate to consider a long position.