Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is First Commonwealth Financial Corporation (NYSE:FCF) the right pick for your portfolio? Money managers are turning less bullish. The number of long hedge fund positions decreased by 3 in recent months. Our calculations also showed that FCF isn’t among the 30 most popular stocks among hedge funds (see the video below). FCF was in 12 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with FCF 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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. We’re going to go over the key hedge fund action encompassing First Commonwealth Financial Corporation (NYSE:FCF).
Hedge fund activity in First Commonwealth Financial Corporation (NYSE:FCF)
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in FCF a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of First Commonwealth Financial Corporation (NYSE:FCF), with a stake worth $18.9 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $6.2 million. Citadel Investment Group, Arrowstreet Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Since First Commonwealth Financial Corporation (NYSE:FCF) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers who sold off their positions entirely in the second quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $0.4 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund said goodbye to about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to First Commonwealth Financial Corporation (NYSE:FCF). We will take a look at Fresh Del Monte Produce Inc (NYSE:FDP), Hertz Global Holdings, Inc. (NYSE:HTZ), US Ecology Inc. (NASDAQ:ECOL), and Raven Industries, Inc. (NASDAQ:RAVN). This group of stocks’ market valuations are similar to FCF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FDP | 11 | 42120 | -3 |
| HTZ | 30 | 916881 | 4 |
| ECOL | 5 | 6575 | -4 |
| RAVN | 12 | 106797 | 1 |
| Average | 14.5 | 268093 | -0.5 |
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 $268 million. That figure was $39 million in FCF’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 5 bullish hedge fund positions. First Commonwealth Financial Corporation (NYSE:FCF) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FCF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FCF investors were disappointed as the stock returned -0.7% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
