In this article we are going to use hedge fund sentiment as a tool and determine whether United Insurance Holdings Corp. (NASDAQ:UIHC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is UIHC a good stock to buy now? Hedge fund interest in United Insurance Holdings Corp. (NASDAQ:UIHC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that UIHC 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). At the end of this article we will also compare UIHC to other stocks including West Bancorporation, Inc. (NASDAQ:WTBA), G. Willi-Food International Limited (NASDAQ:WILC), and Genius Brands International, Inc. (NASDAQ:GNUS) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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.
Bernard Horn of Polaris Capital Management
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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 let’s take a look at the recent hedge fund action regarding United Insurance Holdings Corp. (NASDAQ:UIHC).
Do Hedge Funds Think United Insurance Holdings Corp. (NASDAQ:UIHC) Is A Good Stock To Buy?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UIHC over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in United Insurance Holdings Corp. (NASDAQ:UIHC) was held by Stadium Capital Management, which reported holding $3.6 million worth of stock at the end of September. It was followed by Polaris Capital Management with a $1.3 million position. Other investors bullish on the company included Renaissance Technologies, Ancora Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to United Insurance Holdings Corp. (NASDAQ:UIHC), around 1.69% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to UIHC.
Judging by the fact that United Insurance Holdings Corp. (NASDAQ:UIHC) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of funds who sold off their full holdings last quarter. Interestingly, Israel Englander’s Millennium Management sold off the largest stake of the “upper crust” of funds followed by Insider Monkey, worth about $0.3 million in stock. Greg Eisner’s fund, Engineers Gate Manager, also dropped its stock, about $0.1 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to United Insurance Holdings Corp. (NASDAQ:UIHC). We will take a look at West Bancorporation, Inc. (NASDAQ:WTBA), G. Willi-Food International Limited (NASDAQ:WILC), Genius Brands International, Inc. (NASDAQ:GNUS), Cabaletta Bio, Inc. (NASDAQ:CABA), NantHealth, Inc. (NASDAQ:NH), Northwest Pipe Company (NASDAQ:NWPX), and Escalade, Inc. (NASDAQ:ESCA). This group of stocks’ market valuations are closest to UIHC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WTBA | 3 | 6805 | 0 |
| WILC | 3 | 29801 | 0 |
| GNUS | 2 | 2021 | -2 |
| CABA | 8 | 93137 | -1 |
| NH | 5 | 3004 | 2 |
| NWPX | 10 | 35388 | -3 |
| ESCA | 9 | 16436 | 1 |
| Average | 5.7 | 26656 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.7 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $7 million in UIHC’s case. Northwest Pipe Company (NASDAQ:NWPX) is the most popular stock in this table. On the other hand Genius Brands International, Inc. (NASDAQ:GNUS) is the least popular one with only 2 bullish hedge fund positions. United Insurance Holdings Corp. (NASDAQ:UIHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UIHC is 66.8. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately UIHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UIHC were disappointed as the stock returned -23.4% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
