We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether First Hawaiian, Inc. (NASDAQ:FHB) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is First Hawaiian, Inc. (NASDAQ:FHB) the right investment to pursue these days? Hedge funds are getting less optimistic. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that FHB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). FHB was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with FHB positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the latest hedge fund action encompassing First Hawaiian, Inc. (NASDAQ:FHB).
What does smart money think about First Hawaiian, Inc. (NASDAQ:FHB)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in FHB a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in First Hawaiian, Inc. (NASDAQ:FHB), which was worth $33.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $31.8 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position BlueMar Capital Management allocated the biggest weight to First Hawaiian, Inc. (NASDAQ:FHB), around 4.19% of its 13F portfolio. Wallace R. Weitz & Co. is also relatively very bullish on the stock, setting aside 0.18 percent of its 13F equity portfolio to FHB.
Due to the fact that First Hawaiian, Inc. (NASDAQ:FHB) has experienced a decline in interest from hedge fund managers, we can see that there were a few hedgies who were dropping their full holdings last quarter. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $12.6 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $1.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as First Hawaiian, Inc. (NASDAQ:FHB) but similarly valued. We will take a look at Eagle Materials, Inc. (NYSE:EXP), Murphy USA Inc. (NYSE:MUSA), SLM Corp (NASDAQ:SLM), and PBF Energy Inc (NYSE:PBF). This group of stocks’ market values are closest to FHB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXP | 38 | 537210 | -2 |
| MUSA | 28 | 330732 | 6 |
| SLM | 39 | 634486 | 10 |
| PBF | 32 | 279673 | 2 |
| Average | 34.25 | 445525 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $170 million in FHB’s case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Murphy USA Inc. (NYSE:MUSA) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks First Hawaiian, Inc. (NASDAQ:FHB) is even less popular than MUSA. Hedge funds dodged a bullet by taking a bearish stance towards FHB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately FHB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FHB investors were disappointed as the stock returned -42.7% 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
