It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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 FGL Holdings (NYSE:FG).
Is FGL Holdings (NYSE:FG) the right investment to pursue these days? The best stock pickers are selling. The number of long hedge fund positions fell by 6 recently. Our calculations also showed that fg isn't among the 30 most popular stocks among hedge funds. FG was in 23 hedge funds' portfolios at the end of the first quarter of 2019. There were 29 hedge funds in our database with FG positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_324853" align="aligncenter" width="450"] Joshua Friedman of Canyon Capital[/caption]
We're going to analyze the fresh hedge fund action regarding FGL Holdings (NYSE:FG).
What have hedge funds been doing with FGL Holdings (NYSE:FG)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the fourth quarter of 2018. On the other hand, there were a total of 30 hedge funds with a bullish position in FG a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Kingstown Capital Management held the most valuable stake in FGL Holdings (NYSE:FG), which was worth $55.1 million at the end of the first quarter. On the second spot was MFN Partners which amassed $23.6 million worth of shares. Moreover, Ulysses Management, Canyon Capital Advisors, and StackLine Partners were also bullish on FGL Holdings (NYSE:FG), allocating a large percentage of their portfolios to this stock.
Judging by the fact that FGL Holdings (NYSE:FG) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of funds that elected to cut their entire stakes last quarter. At the top of the heap, Kenneth Mario Garschina's Mason Capital Management cut the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $39.1 million in stock. David Rosen's fund, Rubric Capital Management, also dropped its stock, about $10.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as FGL Holdings (NYSE:FG) but similarly valued. These stocks are Allakos Inc. (NASDAQ:ALLK), DSW Inc. (NYSE:DSW), NGL Energy Partners LP (NYSE:NGL), and Osisko Gold Royalties Ltd (NYSE:OR). This group of stocks' market values match FG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLK,9,148939,-1 DSW,19,138500,-8 NGL,4,12350,0 OR,7,23537,-4 Average,9.75,80832,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $183 million in FG's case. DSW Inc. (NYSE:DSW) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks FGL Holdings (NYSE:FG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FG as the stock returned 5.3% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.