Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in First Horizon National Corporation (NYSE:FHN)? The smart money sentiment can provide an answer to this question.
First Horizon National Corporation (NYSE:FHN) has experienced a decrease in hedge fund sentiment lately. Our calculations also showed that FHN isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s analyze the recent hedge fund action surrounding First Horizon National Corporation (NYSE:FHN).
What have hedge funds been doing with First Horizon National Corporation (NYSE:FHN)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FHN over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, EJF Capital was the largest shareholder of First Horizon National Corporation (NYSE:FHN), with a stake worth $56.9 million reported as of the end of March. Trailing EJF Capital was Diamond Hill Capital, which amassed a stake valued at $14 million. Millennium Management, Huber Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Since First Horizon National Corporation (NYSE:FHN) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of hedge funds who sold off their positions entirely in the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $5.1 million in stock, and Matthew Lindenbaum’s Basswood Capital was right behind this move, as the fund cut about $4.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to First Horizon National Corporation (NYSE:FHN). These stocks are Williams-Sonoma, Inc. (NYSE:WSM), Itau CorpBanca (NYSE:ITCB), Radian Group Inc (NYSE:RDN), and Cyberark Software Ltd (NASDAQ:CYBR). This group of stocks’ market valuations are similar to FHN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSM | 29 | 371142 | 12 |
| ITCB | 1 | 4168 | 0 |
| RDN | 19 | 192857 | -5 |
| CYBR | 28 | 435159 | 8 |
| Average | 19.25 | 250832 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $126 million in FHN’s case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. First Horizon National Corporation (NYSE:FHN) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FHN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FHN investors were disappointed as the stock returned 3.1% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
