We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Capitol Federal Financial, Inc. (NASDAQ:CFFN).
Capitol Federal Financial, Inc. (NASDAQ:CFFN) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Four Corners Property Trust, Inc. (NYSE:FCPT), NovaGold Resources Inc. (NYSE:NG), and Comfort Systems USA, Inc. (NYSE:FIX) to gather more data points. Our calculations also showed that CFFN 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. We're going to analyze the fresh hedge fund action encompassing Capitol Federal Financial, Inc. (NASDAQ:CFFN).
How are hedge funds trading Capitol Federal Financial, Inc. (NASDAQ:CFFN)?
At Q2's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CFFN over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Capitol Federal Financial, Inc. (NASDAQ:CFFN) was held by Renaissance Technologies, which reported holding $115.5 million worth of stock at the end of March. It was followed by First Pacific Advisors LLC with a $8.9 million position. Other investors bullish on the company included Citadel Investment Group, Azora Capital, and Arrowstreet Capital.
Seeing as Capitol Federal Financial, Inc. (NASDAQ:CFFN) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds who sold off their full holdings in the second quarter. It's worth mentioning that David Harding's Winton Capital Management sold off the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $0.3 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also dropped its stock, about $0 million worth. These transactions are important to note, as total 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 Capitol Federal Financial, Inc. (NASDAQ:CFFN). We will take a look at Four Corners Property Trust, Inc. (NYSE:FCPT), NovaGold Resources Inc. (NYSE:NG), Comfort Systems USA, Inc. (NYSE:FIX), and Flagstar Bancorp Inc (NYSE:FBC). This group of stocks' market valuations resemble CFFN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCPT,21,108307,8 NG,10,206617,-3 FIX,23,102393,-5 FBC,15,64461,1 Average,17.25,120445,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $151 million in CFFN's case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand NovaGold Resources Inc. (NYSE:NG) is the least popular one with only 10 bullish hedge fund positions. Capitol Federal Financial, Inc. (NASDAQ:CFFN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CFFN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CFFN investors were disappointed as the stock returned 0.7% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.