Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets, hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Flagstar Bancorp Inc (NYSE:FBC).
Flagstar Bancorp Inc (NYSE:FBC) was in 17 hedge funds’ portfolios at the end of the third quarter of 2015. FBC shareholders have witnessed an increase in hedge fund interest lately. There were 11 hedge funds in our database with FBC positions at the end of the previous quarter. At the end of this article we will also compare FBC to other stocks including NIC Inc. (NASDAQ:EGOV), Smart & Final Stores Inc (NYSE:SFS), and New Gold Inc. (USA) (NYSEMKT:NGD) to get a better sense of its popularity.
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Today there are several methods stock market investors put to use to grade publicly traded companies. A pair of the less utilized methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform the S&P 500 by a solid margin (see the details here).
Keeping this in mind, let’s view the recent action surrounding Flagstar Bancorp Inc (NYSE:FBC).
How have hedgies been trading Flagstar Bancorp Inc (NYSE:FBC)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a surge of 55% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the number one position in Flagstar Bancorp Inc (NYSE:FBC). The fund has a $28.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Porter Collins, Daniel Moses, and Vincent Daniel of Seawolf Capital, with a $12.9 million stake in the company; the fund has 3.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass D. E. Shaw’s D E Shaw, Jim Simons’s Renaissance Technologies and Millennium Management Subsidiary’s Decade Capital Management.
With a general bullishness amongst the heavyweights, key money managers have jumped into Flagstar Bancorp Inc (NYSE:FBC) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the biggest position in Flagstar Bancorp Inc (NYSE:FBC), worth nearly $1.5 million at the end of the quarter. Chao Ku’s Nine Chapters Capital Management also made a $1.4 million investment in the stock during the quarter. The following funds were also among the new FBC investors: Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Lee Munder’s Lee Munder Capital Group.
Let’s check out hedge fund activity in other stocks similar to Flagstar Bancorp Inc (NYSE:FBC). These stocks are NIC Inc. (NASDAQ:EGOV), Smart & Final Stores Inc (NYSE:SFS), New Gold Inc. (USA) (NYSEMKT:NGD), and Exponent, Inc. (NASDAQ:EXPO). This group of stocks’ market valuations match FBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EGOV | 15 | 52849 | 3 |
| SFS | 11 | 145311 | -2 |
| NGD | 11 | 61004 | -5 |
| EXPO | 9 | 68028 | -3 |
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $66 million in FBC’s case, not a positive sign. NIC Inc. (NASDAQ:EGOV) is the most popular stock in this table, while Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Flagstar Bancorp Inc (NYSE:FBC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
