Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. 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 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Hilltop Holdings Inc. (NYSE:HTH) the right investment to pursue these days? The best stock pickers are getting more bullish. The number of long hedge fund bets rose by 1 recently. Our calculations also showed that HTH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HTH was in 19 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with HTH holdings at the end of the previous quarter.
Video: Click the image to 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 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.
Chuck Royce of Royce & Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the recent hedge fund action encompassing Hilltop Holdings Inc. (NYSE:HTH).
What have hedge funds been doing with Hilltop Holdings Inc. (NYSE:HTH)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HTH over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the largest position in Hilltop Holdings Inc. (NYSE:HTH). Renaissance Technologies has a $24.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $17.6 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers that are bullish contain Cliff Asness’s AQR Capital Management, Mark Lee’s Forest Hill Capital and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Hilltop Holdings Inc. (NYSE:HTH), around 3.09% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 0.56 percent of its 13F equity portfolio to HTH.
As aggregate interest increased, key hedge funds have jumped into Hilltop Holdings Inc. (NYSE:HTH) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, created the biggest call position in Hilltop Holdings Inc. (NYSE:HTH). PEAK6 Capital Management had $1.4 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.8 million position during the quarter. The following funds were also among the new HTH investors: Peter Algert and Kevin Coldiron’s Algert Coldiron Investors and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hilltop Holdings Inc. (NYSE:HTH) but similarly valued. We will take a look at Rapid7 Inc (NASDAQ:RPD), Genworth Financial Inc (NYSE:GNW), Artisan Partners Asset Management Inc (NYSE:APAM), and Inter Parfums, Inc. (NASDAQ:IPAR). This group of stocks’ market caps match HTH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RPD | 23 | 227036 | -2 |
| GNW | 29 | 266769 | 7 |
| APAM | 13 | 206432 | -2 |
| IPAR | 13 | 74430 | -4 |
| Average | 19.5 | 193667 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $95 million in HTH’s case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand Artisan Partners Asset Management Inc (NYSE:APAM) is the least popular one with only 13 bullish hedge fund positions. Hilltop Holdings Inc. (NYSE:HTH) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HTH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HTH investors were disappointed as the stock returned 3.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
