Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards First Midwest Bancorp Inc (NASDAQ:FMBI).
First Midwest Bancorp Inc (NASDAQ:FMBI) investors should be aware of a decrease in hedge fund sentiment in recent months. FMBI was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with FMBI positions at the end of the previous quarter. Our calculations also showed that FMBI 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Price of MFP Investors
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. 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. Keeping this in mind we’re going to take a peek at the latest hedge fund action encompassing First Midwest Bancorp Inc (NASDAQ:FMBI).
How have hedgies been trading First Midwest Bancorp Inc (NASDAQ:FMBI)?
At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FMBI over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in First Midwest Bancorp Inc (NASDAQ:FMBI), which was worth $42.6 million at the end of the third quarter. On the second spot was MFP Investors which amassed $6.6 million worth of shares. Balyasny Asset Management, Citadel Investment Group, 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 MFP Investors allocated the biggest weight to First Midwest Bancorp Inc (NASDAQ:FMBI), around 0.92% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to FMBI.
Due to the fact that First Midwest Bancorp Inc (NASDAQ:FMBI) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely in the third quarter. Intriguingly, Michael Barnes and Arif Inayatullah’s Tricadia Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, worth close to $4.5 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to First Midwest Bancorp Inc (NASDAQ:FMBI). We will take a look at Sunoco LP (NYSE:SUN), Frontline Ltd (NYSE:FRO), First Financial Bancorp (NASDAQ:FFBC), and Innospec Inc. (NASDAQ:IOSP). This group of stocks’ market valuations resemble FMBI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUN | 6 | 14008 | 3 |
| FRO | 17 | 115018 | 3 |
| FFBC | 5 | 6404 | -2 |
| IOSP | 18 | 114008 | -2 |
| Average | 11.5 | 62360 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $63 million in FMBI’s case. Innospec Inc. (NASDAQ:IOSP) is the most popular stock in this table. On the other hand First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only 5 bullish hedge fund positions. First Midwest Bancorp Inc (NASDAQ:FMBI) 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 FMBI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FMBI investors were disappointed as the stock returned -42.1% 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.
