The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded First American Financial Corp (NYSE:FAF) based on those filings.
Is First American Financial Corp (NYSE:FAF) a healthy stock for your portfolio? Hedge funds were in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 7 in recent months. First American Financial Corp (NYSE:FAF) was in 32 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 44. Our calculations also showed that FAF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 39 hedge funds in our database with FAF holdings at the end of December.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
John Rogers of Ariel Investments
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s view the latest hedge fund action regarding First American Financial Corp (NYSE:FAF).
Do Hedge Funds Think FAF Is A Good Stock To Buy Now?
At first quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FAF over the last 23 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in First American Financial Corp (NYSE:FAF) was held by Ariel Investments, which reported holding $304.3 million worth of stock at the end of December. It was followed by HG Vora Capital Management with a $170 million position. Other investors bullish on the company included Lakewood Capital Management, D E Shaw, and Fisher Asset Management. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to First American Financial Corp (NYSE:FAF), around 9.08% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, designating 3.44 percent of its 13F equity portfolio to FAF.
Seeing as First American Financial Corp (NYSE:FAF) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that elected to cut their full holdings heading into Q2. Intriguingly, Richard Merage’s MIG Capital cut the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $36.2 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $6.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 7 funds heading into Q2.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as First American Financial Corp (NYSE:FAF) but similarly valued. These stocks are CACI International Inc (NYSE:CACI), BOK Financial Corporation (NASDAQ:BOKF), Ovintiv Inc. (NYSE:OVV), Coherent, Inc. (NASDAQ:COHR), Stericycle Inc (NASDAQ:SRCL), The Timken Company (NYSE:TKR), and nCino, Inc. (NASDAQ:NCNO). This group of stocks’ market caps resemble FAF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CACI | 21 | 632278 | -7 |
| BOKF | 17 | 454944 | -9 |
| OVV | 30 | 533700 | 4 |
| COHR | 41 | 1454406 | 19 |
| SRCL | 24 | 648956 | -1 |
| TKR | 23 | 225807 | -11 |
| NCNO | 21 | 342756 | -7 |
| Average | 25.3 | 613264 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $613 million. That figure was $965 million in FAF’s case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand BOK Financial Corporation (NASDAQ:BOKF) is the least popular one with only 17 bullish hedge fund positions. First American Financial Corp (NYSE:FAF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FAF is 51.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Hedge funds were also right about betting on FAF, though not to the same extent, as the stock returned 10.7% since Q1 (through July 2nd) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
