Financial Institutions, Inc. (FISI): Hedge Funds In Wait-and-See Mode

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Financial Institutions, Inc. (NASDAQ:FISI) and determine whether hedge funds had an edge regarding this stock.

Financial Institutions, Inc. (NASDAQ:FISI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Craft Brew Alliance Inc (NASDAQ:BREW), Alerus Financial Corporation (NASDAQ:ALRS), and Celsius Holdings, Inc. (NASDAQ:CELH) to gather more data points. Our calculations also showed that FISI 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).

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

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the recent hedge fund action surrounding Financial Institutions, Inc. (NASDAQ:FISI).

Hedge fund activity in Financial Institutions, Inc. (NASDAQ:FISI)

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FISI over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Financial Institutions, Inc. (NASDAQ:FISI), which was worth $10.2 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $8.3 million worth of shares. Arrowstreet Capital, Millennium Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Financial Institutions, Inc. (NASDAQ:FISI), around 0.11% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to FISI.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the first quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s check out hedge fund activity in other stocks similar to Financial Institutions, Inc. (NASDAQ:FISI). We will take a look at Craft Brew Alliance Inc (NASDAQ:BREW), Alerus Financial Corporation (NASDAQ:ALRS), Celsius Holdings, Inc. (NASDAQ:CELH), and Avid Technology, Inc. (NASDAQ:AVID). This group of stocks’ market valuations are closest to FISI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $24 million in FISI’s case. Avid Technology, Inc. (NASDAQ:AVID) is the most popular stock in this table. On the other hand Alerus Financial Corporation (NASDAQ:ALRS) is the least popular one with only 1 bullish hedge fund positions. Financial Institutions, Inc. (NASDAQ:FISI) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately FISI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FISI were disappointed as the stock returned 4% 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.