We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like First Foundation Inc (NASDAQ:FFWM).
Is First Foundation Inc (NASDAQ:FFWM) a safe investment right now? The smart money is getting more optimistic. The number of bullish hedge fund positions inched up by 2 in recent months. Our calculations also showed that FFWM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action surrounding First Foundation Inc (NASDAQ:FFWM).
How have hedgies been trading First Foundation Inc (NASDAQ:FFWM)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in FFWM a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in First Foundation Inc (NASDAQ:FFWM) was held by Endicott Management, which reported holding $17.5 million worth of stock at the end of September. It was followed by Azora Capital with a $12.2 million position. Other investors bullish on the company included Basswood Capital, Mendon Capital Advisors, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Endicott Management allocated the biggest weight to First Foundation Inc (NASDAQ:FFWM), around 15.68% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, designating 2.69 percent of its 13F equity portfolio to FFWM.
As aggregate interest increased, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in First Foundation Inc (NASDAQ:FFWM). Arrowstreet Capital had $0.5 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.5 million position during the quarter.
Let’s also examine hedge fund activity in other stocks similar to First Foundation Inc (NASDAQ:FFWM). These stocks are Impinj, Inc. (NASDAQ:PI), Byline Bancorp, Inc. (NYSE:BY), P.H. Glatfelter Company (NYSE:GLT), and New Gold Inc. (NYSE:NGD). This group of stocks’ market caps are closest to FFWM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PI | 15 | 213268 | -2 |
| BY | 5 | 20148 | 0 |
| GLT | 9 | 15614 | 3 |
| NGD | 14 | 85429 | 1 |
| Average | 10.75 | 83615 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $72 million in FFWM’s case. Impinj, Inc. (NASDAQ:PI) is the most popular stock in this table. On the other hand Byline Bancorp, Inc. (NYSE:BY) is the least popular one with only 5 bullish hedge fund positions. First Foundation Inc (NASDAQ:FFWM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FFWM, though not to the same extent, as the stock returned 7.6% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
