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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Flagstar Bancorp Inc (NYSE:FBC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Flagstar Bancorp Inc (NYSE:FBC) the right investment to pursue these days? The best stock pickers are getting more bullish. The number of long hedge fund bets increased by 5 lately. Our calculations also showed that FBC 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). FBC was in 20 hedge funds’ portfolios at the end of December. There were 15 hedge funds in our database with FBC holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 go over the recent hedge fund action encompassing Flagstar Bancorp Inc (NYSE:FBC).
How have hedgies been trading Flagstar Bancorp Inc (NYSE:FBC)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FBC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Flagstar Bancorp Inc (NYSE:FBC), which was worth $37.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $18.9 million worth of shares. Millennium Management, Citadel Investment Group, and Winton Capital Management 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 Islet Management allocated the biggest weight to Flagstar Bancorp Inc (NYSE:FBC), around 0.82% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 0.61 percent of its 13F equity portfolio to FBC.
Now, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in Flagstar Bancorp Inc (NYSE:FBC). Citadel Investment Group had $13.2 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $8.8 million position during the quarter. The other funds with brand new FBC positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Mika Toikka’s AlphaCrest Capital Management, and Thomas Bailard’s Bailard Inc.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Flagstar Bancorp Inc (NYSE:FBC) but similarly valued. These stocks are Ladder Capital Corp (NYSE:LADR), WillScot Corporation (NASDAQ:WSC), Asbury Automotive Group, Inc. (NYSE:ABG), and Canada Goose Holdings Inc. (NYSE:GOOS). All of these stocks’ market caps are closest to FBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LADR | 11 | 61347 | -2 |
| WSC | 28 | 336936 | 4 |
| ABG | 24 | 362588 | 2 |
| GOOS | 20 | 378578 | 5 |
| Average | 20.75 | 284862 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $154 million in FBC’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Ladder Capital Corp (NYSE:LADR) is the least popular one with only 11 bullish hedge fund positions. Flagstar Bancorp Inc (NYSE:FBC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately FBC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FBC investors were disappointed as the stock returned -49.2% 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 in 2020.
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.
