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Should You Avoid Heritage Insurance Holdings Inc (HRTG)?

Debasis Saha

Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Heritage Insurance Holdings Inc (NYSE:HRTG) changed during the first quarter.

Heritage Insurance Holdings Inc (NYSE:HRTG) has seen a decrease in enthusiasm from smart money in recent months. HRTG was in 9 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with HRTG holdings at the end of the previous quarter. Our calculations also showed that HRTG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

If you'd ask most market participants, hedge funds are seen as slow, outdated financial tools of years past. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the leaders of this group, around 750 funds. It is estimated that this group of investors watch over most of the hedge fund industry's total asset base, and by keeping track of their highest performing investments, Insider Monkey has found a number of investment strategies that have historically defeated the broader indices. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce
Chuck Royce

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's view the latest hedge fund action encompassing Heritage Insurance Holdings Inc (NYSE:HRTG).

Hedge fund activity in Heritage Insurance Holdings Inc (NYSE:HRTG)

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the second quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in HRTG a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is HRTG A Good Stock To Buy?
Is HRTG A Good Stock To Buy?

More specifically, Polar Capital was the largest shareholder of Heritage Insurance Holdings Inc (NYSE:HRTG), with a stake worth $14.8 million reported as of the end of September. Trailing Polar Capital was Royce & Associates, which amassed a stake valued at $12.8 million. Rutabaga Capital Management, Renaissance Technologies, and Gillson Capital 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 Rutabaga Capital Management allocated the biggest weight to Heritage Insurance Holdings Inc (NYSE:HRTG), around 2.93% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to HRTG.

Seeing as Heritage Insurance Holdings Inc (NYSE:HRTG) has witnessed a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of funds who sold off their positions entirely heading into Q4. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace dropped the biggest investment of all the hedgies watched by Insider Monkey, valued at about $0.9 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund said goodbye to about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Heritage Insurance Holdings Inc (NYSE:HRTG) but similarly valued. We will take a look at Oxford Immunotec Global PLC (NASDAQ:OXFD), Pennsylvania Real Estate Investment Trust (NYSE:PEI), Vishay Precision Group Inc (NYSE:VPG), and Sentinel Energy Services Inc. (NASDAQ:STNL). This group of stocks' market caps are similar to HRTG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OXFD,19,194524,3 PEI,5,8826,-1 VPG,15,137650,1 STNL,15,122821,0 Average,13.5,115955,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $48 million in HRTG's case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand Pennsylvania Real Estate Investment Trust (NYSE:PEI) is the least popular one with only 5 bullish hedge fund positions. Heritage Insurance Holdings Inc (NYSE:HRTG) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HRTG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HRTG investors were disappointed as the stock returned -8.4% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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