Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Fanhua Inc (ADR) (NASDAQ:FANH).
Fanhua Inc (ADR) (NASDAQ:FANH) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. FANH was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. There were 8 hedge funds in our database with FANH positions at the end of the second quarter. At the end of this article we will also compare FANH to other stocks including TravelCenters of America LLC (NYSEAMEX:TA), Phoenix New Media Ltd ADR (NYSE:FENG), and Golden Entertainment Inc (NASDAQ:GDEN) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Sergei Gontsarov/Shutterstock.com
Hedge fund activity in Fanhua Inc (ADR) (NASDAQ:FANH)
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a 13% dip from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FANH over the last 5 quarters, which doubled over a 2-quarter stretch between Q3 2015 and Q1 2016. So, let’s examine 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, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in Fanhua Inc (ADR) (NASDAQ:FANH), worth close to $2.3 million. The second most bullish fund manager is Dmitry Balyasny’s Balyasny Asset Management, holding a $1 million position. Other professional money managers that are bullish encompass Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, D E Shaw, one of the biggest hedge funds in the world, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Due to the fact that Fanhua Inc (ADR) (NASDAQ:FANH) has faced declining sentiment from hedge fund managers, logic holds that there is a sect of hedgies that slashed their positions entirely last quarter. Interestingly, Israel Englander’s Millennium Management sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $0.2 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund sold off its small position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to Fanhua Inc (ADR) (NASDAQ:FANH). These stocks are TravelCenters of America LLC (NYSEAMEX:TA), Phoenix New Media Ltd ADR (NYSE:FENG), Golden Entertainment Inc (NASDAQ:GDEN), and Seneca Foods Corp (NASDAQ:SENEA). This group of stocks’ market valuations are closest to FANH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TA | 14 | 28866 | -1 |
| FENG | 10 | 25476 | 2 |
| GDEN | 10 | 30225 | 3 |
| SENEA | 7 | 13548 | 0 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $6 million in FANH’s case. TravelCenters of America LLC (NYSEAMEX:TA) is the most popular stock in this table. On the other hand Seneca Foods Corp (NASDAQ:SENEA) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Fanhua Inc (ADR) (NASDAQ:FANH) is only as popular as SENEA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.
Disclosure: None