Is Federated National Holding Co (FNHC) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Federated National Holding Co (NASDAQ:FNHC), and what that likely means for the prospects of the company and its stock.

Is Federated National Holding Co (NASDAQ:FNHC) the right investment to pursue these days? Investors who are in the know are definitely getting less optimistic. The number of long hedge fund positions that are disclosed in regulatory 13F filings shrunk by 3 lately. FNHC was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. There were 10 hedge funds in our database with FNHC holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM), Nobilis Health Corp (NYSEMKT:HLTH), and Beigene Ltd (ADR) (NASDAQ:BGNE) to gather more data points.

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.

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With all of this in mind, we’re going to check out the new action surrounding Federated National Holding Co (NASDAQ:FNHC).

How have hedgies been trading Federated National Holding Co (NASDAQ:FNHC)?

Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FNHC over the last 5 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the most valuable position in Federated National Holding Co (NASDAQ:FNHC), worth close to $12.5 million. On Renaissance Technologies’s heels is Ron Bobman of Capital Returns Management, with a $10.8 million position; the fund has 5.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish comprise Anand Parekh’s Alyeska Investment Group, Cliff Asness’ AQR Capital Management and John D. Gillespie’s Prospector Partners. 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-microcap stocks.

Since Federated National Holding Co (NASDAQ:FNHC) has experienced bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that decided to sell off their full holdings heading into Q4. Intriguingly, Jacob Gottlieb’s Visium Asset Management said goodbye to the biggest investment of all the investors monitored by Insider Monkey, comprising close to $0.2 million in stock. David E. Shaw’s fund, D E Shaw, also sold off its stock, about $0.2 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Federated National Holding Co (NASDAQ:FNHC) but similarly valued. We will take a look at Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM), Nobilis Health Corp (NYSEMKT:HLTH), Beigene Ltd (ADR) (NASDAQ:BGNE), and Chimerix Inc (NASDAQ:CMRX). This group of stocks’ market valuations resemble FNHC’s market valuation.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $37 million in FNHC’s case. Beigene Ltd (ADR) (NASDAQ:BGNE) is the most popular stock in this table. On the other hand Nobilis Health Corp (NYSEMKT:HLTH) is the least popular one with only 6 bullish hedge fund positions. Federated National Holding Co (NASDAQ:FNHC) 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. In this regard BGNE might be a better candidate to consider taking a long position in.

Disclosure: None