We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Fanhua Inc. (NASDAQ:FANH).
Fanhua Inc. (NASDAQ:FANH) was in 7 hedge funds’ portfolios at the end of December. FANH shareholders have witnessed a decrease in support from the world’s most elite money managers lately. There were 8 hedge funds in our database with FANH positions at the end of the previous quarter. Our calculations also showed that FANH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 41 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.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the latest hedge fund action encompassing Fanhua Inc. (NASDAQ:FANH).
How are hedge funds trading Fanhua Inc. (NASDAQ:FANH)?
At Q4’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in FANH a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw’s D E Shaw has the biggest position in Fanhua Inc. (NASDAQ:FANH), worth close to $6.4 million, amounting to less than 0.1%% of its total 13F portfolio. On D E Shaw’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $1.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Ernest Chow and Jonathan Howe’s Sensato Capital Management, and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to Fanhua Inc. (NASDAQ:FANH), around 1.11% of its 13F portfolio. Stevens Capital Management is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to FANH.
Since Fanhua Inc. (NASDAQ:FANH) has faced bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth close to $1.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Fanhua Inc. (NASDAQ:FANH). We will take a look at PRA Group, Inc. (NASDAQ:PRAA), Rush Enterprises, Inc. (NASDAQ:RUSHB), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), and National Research Corporation (NASDAQ:NRC). This group of stocks’ market valuations resemble FANH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRAA | 12 | 49091 | 1 |
| RUSHB | 4 | 41101 | 1 |
| BHLB | 9 | 41712 | -3 |
| NRC | 9 | 54049 | -1 |
| Average | 8.5 | 46488 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $13 million in FANH’s case. PRA Group, Inc. (NASDAQ:PRAA) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 4 bullish hedge fund positions. Fanhua Inc. (NASDAQ:FANH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately FANH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FANH investors were disappointed as the stock returned -21.6% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
