While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Five Point Holdings, LLC (NYSE:FPH).
Five Point Holdings, LLC (NYSE:FPH) has seen a decrease in activity from the world’s largest hedge funds of late. FPH was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with FPH positions at the end of the previous quarter. Our calculations also showed that FPH isn’t among the 30 most popular stocks among hedge funds (see the video below).
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. Let’s go over the recent hedge fund action encompassing Five Point Holdings, LLC (NYSE:FPH).
How are hedge funds trading Five Point Holdings, LLC (NYSE:FPH)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in FPH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Third Avenue Management, managed by Martin Whitman, holds the number one position in Five Point Holdings, LLC (NYSE:FPH). Third Avenue Management has a $87.2 million position in the stock, comprising 7.3% of its 13F portfolio. Coming in second is Anchorage Advisors, led by Kevin Michael Ulrich and Anthony Davis, holding a $50.2 million position; 1.5% of its 13F portfolio is allocated to the company. Other peers that are bullish contain John Khoury’s Long Pond Capital, Matthew Barrett’s Glendon Capital Management and Michael Blitzer’s Kingstown Capital Management.
Since Five Point Holdings, LLC (NYSE:FPH) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely by the end of the second quarter. Interestingly, Michael Burry’s Scion Asset Management sold off the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $8.9 million in stock, and Stephen C. Freidheim’s Cyrus Capital Partners was right behind this move, as the fund cut about $0.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks similar to Five Point Holdings, LLC (NYSE:FPH). We will take a look at Radware Ltd. (NASDAQ:RDWR), Alamo Group, Inc. (NYSE:ALG), Knoll Inc (NYSE:KNL), and GasLog Ltd (NYSE:GLOG). This group of stocks’ market valuations are similar to FPH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDWR | 16 | 316267 | -1 |
| ALG | 7 | 185807 | -3 |
| KNL | 16 | 66709 | -3 |
| GLOG | 13 | 47609 | 2 |
| Average | 13 | 154098 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $233 million in FPH’s case. Radware Ltd. (NASDAQ:RDWR) is the most popular stock in this table. On the other hand Alamo Group, Inc. (NYSE:ALG) is the least popular one with only 7 bullish hedge fund positions. Five Point Holdings, LLC (NYSE:FPH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 FPH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FPH were disappointed as the stock returned -0.3% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
