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 First Financial Corp (NASDAQ:THFF) and determine whether hedge funds had an edge regarding this stock.
Is First Financial Corp (NASDAQ:THFF) a buy here? The best stock pickers were taking a bearish view. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that THFF 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.
John Overdeck of Two Sigma Advisors
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. Keeping this in mind let’s go over the latest hedge fund action surrounding First Financial Corp (NASDAQ:THFF).
How have hedgies been trading First Financial Corp (NASDAQ:THFF)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards THFF over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in First Financial Corp (NASDAQ:THFF) was held by Renaissance Technologies, which reported holding $7 million worth of stock at the end of September. It was followed by Stadium Capital Management with a $5.9 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to First Financial Corp (NASDAQ:THFF), around 3.33% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to THFF.
Since First Financial Corp (NASDAQ:THFF) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few money managers who sold off their full holdings by the end of the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $2.8 million in stock. Chuck Royce’s fund, Royce & Associates, also said goodbye to its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the first quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as First Financial Corp (NASDAQ:THFF) but similarly valued. These stocks are Ebix Inc (NASDAQ:EBIX), Nexa Resources S.A. (NYSE:NEXA), Sinovac Biotech Ltd. (NASDAQ:SVA), and Peoples Bancorp Inc. (NASDAQ:PEBO). This group of stocks’ market values match THFF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EBIX | 15 | 44736 | -4 |
| NEXA | 4 | 2109 | -1 |
| SVA | 3 | 56861 | -1 |
| PEBO | 11 | 19179 | 0 |
| Average | 8.25 | 30721 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $20 million in THFF’s case. Ebix Inc (NASDAQ:EBIX) is the most popular stock in this table. On the other hand Sinovac Biotech Ltd. (NASDAQ:SVA) is the least popular one with only 3 bullish hedge fund positions. First Financial Corp (NASDAQ:THFF) 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 THFF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on THFF were disappointed as the stock returned 10.9% 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.
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Disclosure: None. This article was originally published at Insider Monkey.
