Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
FGL Holdings (NYSE:FG) investors should be aware of an increase in hedge fund sentiment lately. FG was in 24 hedge funds’ portfolios at the end of the second quarter of 2019. There were 23 hedge funds in our database with FG positions at the end of the previous quarter. Our calculations also showed that FG isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the key hedge fund action surrounding FGL Holdings (NYSE:FG).
How have hedgies been trading FGL Holdings (NYSE:FG)?
Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FG over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Kingstown Capital Management held the most valuable stake in FGL Holdings (NYSE:FG), which was worth $58.8 million at the end of the second quarter. On the second spot was MFN Partners which amassed $25.2 million worth of shares. Moreover, Ulysses Management, StackLine Partners, and Driehaus Capital were also bullish on FGL Holdings (NYSE:FG), allocating a large percentage of their portfolios to this stock.
Consequently, some big names have jumped into FGL Holdings (NYSE:FG) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in FGL Holdings (NYSE:FG). Arrowstreet Capital had $5.4 million invested in the company at the end of the quarter. Ron Bobman’s Capital Returns Management also made a $3.8 million investment in the stock during the quarter. The other funds with brand new FG positions are Richard Rubin’s Hawkeye Capital, D. E. Shaw’s D E Shaw, and Jonathan Soros’s JS Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FGL Holdings (NYSE:FG) but similarly valued. These stocks are Arcosa, Inc. (NYSE:ACA), LTC Properties Inc (NYSE:LTC), Fastly, Inc. (NYSE:FSLY), and BancFirst Corporation (NASDAQ:BANF). This group of stocks’ market values resemble FG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACA | 24 | 328959 | -1 |
| LTC | 12 | 20856 | 3 |
| FSLY | 13 | 96728 | 13 |
| BANF | 9 | 47285 | -2 |
| Average | 14.5 | 123457 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $201 million in FG’s case. Arcosa, Inc. (NYSE:ACA) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 9 bullish hedge fund positions. FGL Holdings (NYSE:FG) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FG were disappointed as the stock returned -4.9% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
