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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 First Financial Bankshares Inc (NASDAQ:FFIN).
First Financial Bankshares Inc (NASDAQ:FFIN) has seen a decrease in hedge fund interest in recent months. Our calculations also showed that FFIN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Joel Greenblatt of Gotham Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's view the new hedge fund action surrounding First Financial Bankshares Inc (NASDAQ:FFIN).
Hedge fund activity in First Financial Bankshares Inc (NASDAQ:FFIN)
At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the third quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in FFIN a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Holocene Advisors held the most valuable stake in First Financial Bankshares Inc (NASDAQ:FFIN), which was worth $1.8 million at the end of the third quarter. On the second spot was PDT Partners which amassed $1.2 million worth of shares. Citadel Investment Group, D E Shaw, and AQR Capital Management 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 Sciencast Management allocated the biggest weight to First Financial Bankshares Inc (NASDAQ:FFIN), around 0.12% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to FFIN.
Seeing as First Financial Bankshares Inc (NASDAQ:FFIN) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that elected to cut their positions entirely in the third quarter. It's worth mentioning that David Harding's Winton Capital Management said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth about $6.5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $4.9 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to First Financial Bankshares Inc (NASDAQ:FFIN). These stocks are Companhia Siderurgica Nacional (NYSE:SID), Cirrus Logic, Inc. (NASDAQ:CRUS), MAXIMUS, Inc. (NYSE:MMS), and Ryman Hospitality Properties, Inc. (NYSE:RHP). All of these stocks' market caps resemble FFIN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SID,6,18104,-1 CRUS,25,486049,-1 MMS,24,210310,-2 RHP,30,457764,6 Average,21.25,293057,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $10 million in FFIN's case. Ryman Hospitality Properties, Inc. (NYSE:RHP) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 6 bullish hedge fund positions. First Financial Bankshares Inc (NASDAQ:FFIN) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FFIN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FFIN investors were disappointed as the stock returned -26.9% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.