Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Freedom Holding Corp. (NASDAQ:FRHC).
Is Freedom Holding Corp. (NASDAQ:FRHC) a good stock to buy now? FRHC was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 3. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FRHC investors should pay attention to an increase in enthusiasm from smart money of late. There were 3 hedge funds in our database with FRHC holdings at the end of June. Our calculations also showed that FRHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the recent hedge fund action surrounding Freedom Holding Corp. (NASDAQ:FRHC).
How are hedge funds trading Freedom Holding Corp. (NASDAQ:FRHC)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in FRHC a year ago. So, let’s see 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, Renaissance Technologies has the biggest position in Freedom Holding Corp. (NASDAQ:FRHC), worth close to $20 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $4.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Freedom Holding Corp. (NASDAQ:FRHC), around 0.02% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to FRHC.
As aggregate interest increased, key hedge funds have jumped into Freedom Holding Corp. (NASDAQ:FRHC) headfirst. D E Shaw, managed by D. E. Shaw, established the most outsized position in Freedom Holding Corp. (NASDAQ:FRHC). D E Shaw had $0.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Cliff Asness’s AQR Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Freedom Holding Corp. (NASDAQ:FRHC) but similarly valued. We will take a look at PQ Group Holdings Inc. (NYSE:PQG), ALX Oncology Holdings Inc. (NASDAQ:ALXO), Two Harbors Investment Corp (NYSE:TWO), Axos Financial, Inc. (NYSE:AX), Mednax Inc. (NYSE:MD), SITE Centers Corp. (NYSE:SITC), and Chesapeake Utilities Corporation (NYSE:CPK). This group of stocks’ market caps resemble FRHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PQG | 13 | 36502 | 7 |
| ALXO | 9 | 361214 | 9 |
| TWO | 17 | 36539 | 1 |
| AX | 15 | 48303 | -2 |
| MD | 22 | 338189 | -1 |
| SITC | 14 | 41182 | -1 |
| CPK | 7 | 9195 | -2 |
| Average | 13.9 | 124446 | 1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $27 million in FRHC’s case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Freedom Holding Corp. (NASDAQ:FRHC) is even less popular than CPK. Our overall hedge fund sentiment score for FRHC is 38. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on FRHC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on FRHC as the stock returned 50.3% since Q3 (through November 27th) and outperformed the market by an even larger margin.
Follow Freedom Holding Corp. (NASDAQ:FRHC)
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Disclosure: None. This article was originally published at Insider Monkey.
