Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like F.N.B. Corp (NYSE:FNB).
F.N.B. Corp (NYSE:FNB) has experienced a decrease in hedge fund interest of late. Our calculations also showed that FNB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action surrounding F.N.B. Corp (NYSE:FNB).
What have hedge funds been doing with F.N.B. Corp (NYSE:FNB)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in FNB over the last 17 quarters. So, let’s check out 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 F.N.B. Corp (NYSE:FNB), which was worth $42.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $24 million worth of shares. Citadel Investment Group, EJF Capital, and Basswood 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 EJF Capital allocated the biggest weight to F.N.B. Corp (NYSE:FNB), around 1.01% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, earmarking 0.62 percent of its 13F equity portfolio to FNB.
Since F.N.B. Corp (NYSE:FNB) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few hedgies that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $1.1 million in stock, and Hoon Kim’s Quantinno Capital was right behind this move, as the fund said goodbye to about $0.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as F.N.B. Corp (NYSE:FNB) but similarly valued. These stocks are Weingarten Realty Investors (NYSE:WRI), Stag Industrial Inc (NYSE:STAG), Lazard Ltd (NYSE:LAZ), and Viper Energy Partners LP (NASDAQ:VNOM). All of these stocks’ market caps are closest to FNB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WRI | 19 | 170653 | -1 |
| STAG | 20 | 217915 | 9 |
| LAZ | 13 | 600550 | -3 |
| VNOM | 14 | 130553 | 1 |
| Average | 16.5 | 279918 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $108 million in FNB’s case. Stag Industrial Inc (NYSE:STAG) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 13 bullish hedge fund positions. F.N.B. Corp (NYSE:FNB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FNB, though not to the same extent, as the stock returned 7.7% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
