Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is First Horizon National Corporation (NYSE:FHN) a cheap investment now? Money managers are getting more bullish. The number of long hedge fund bets advanced by 8 recently. Our calculations also showed that FHN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the key hedge fund action surrounding First Horizon National Corporation (NYSE:FHN).
What have hedge funds been doing with First Horizon National Corporation (NYSE:FHN)?
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the second quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in FHN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of First Horizon National Corporation (NYSE:FHN), with a stake worth $44.8 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $26.6 million. Diamond Hill Capital, Marshall Wace, and EJF Capital 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 Forest Hill Capital allocated the biggest weight to First Horizon National Corporation (NYSE:FHN), around 3.05% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, dishing out 1.7 percent of its 13F equity portfolio to FHN.
Consequently, key money managers were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, created the biggest position in First Horizon National Corporation (NYSE:FHN). Marshall Wace had $13.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $8.6 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Daniel Johnson’s Gillson Capital, and Ravi Chopra’s Azora Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as First Horizon National Corporation (NYSE:FHN) but similarly valued. We will take a look at TFS Financial Corporation (NASDAQ:TFSL), Texas Pacific Land Trust (NYSE:TPL), Manpowergroup Inc (NYSE:MAN), and Portland General Electric Company (NYSE:POR). This group of stocks’ market valuations are similar to FHN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TFSL | 8 | 157723 | 3 |
| TPL | 12 | 1254260 | -4 |
| MAN | 19 | 377209 | 2 |
| POR | 23 | 391261 | 5 |
| Average | 15.5 | 545113 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $193 million in FHN’s case. Portland General Electric Company (NYSE:POR) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks First Horizon National Corporation (NYSE:FHN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately FHN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FHN were disappointed as the stock returned 30.7% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
