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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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of First Horizon National Corporation (NYSE:FHN).
Is First Horizon National Corporation (NYSE:FHN) going to take off soon? The smart money is in a bearish mood. The number of bullish hedge fund positions were cut by 7 in recent months. Our calculations also showed that FHN 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). FHN was in 27 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 34 hedge funds in our database with FHN positions at the end of the previous quarter.
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 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 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.
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Israel Englander of Millennium 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. Keeping this in mind we're going to take a peek at the latest hedge fund action regarding First Horizon National Corporation (NYSE:FHN).
Hedge fund activity in First Horizon National Corporation (NYSE:FHN)
Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the third quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in FHN a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in First Horizon National Corporation (NYSE:FHN), which was worth $47.7 million at the end of the third quarter. On the second spot was EJF Capital which amassed $26.5 million worth of shares. Carlson Capital, Renaissance Technologies, and Citadel Investment Group 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 EJF Capital allocated the biggest weight to First Horizon National Corporation (NYSE:FHN), around 2.66% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 1.85 percent of its 13F equity portfolio to FHN.
Judging by the fact that First Horizon National Corporation (NYSE:FHN) has witnessed a decline in interest from the smart money, it's safe to say that there was a specific group of hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth close to $13.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $11.3 million worth. These moves are interesting, as total hedge fund interest fell by 7 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to First Horizon National Corporation (NYSE:FHN). We will take a look at GSX Techedu Inc. (NYSE:GSX), Calgon Carbon Corporation (NYSE:CCC), Floor & Decor Holdings, Inc. (NYSE:FND), and Cloudflare, Inc. (NYSE:NET). All of these stocks' market caps resemble FHN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSX,10,86015,7 CCC,45,813021,7 FND,27,547579,3 NET,22,205121,-11 Average,26,412934,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $247 million in FHN's case. Calgon Carbon Corporation (NYSE:CCC) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 10 bullish hedge fund positions. First Horizon National Corporation (NYSE:FHN) is not the most popular stock in this group but hedge fund interest is still above average. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FHN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FHN were disappointed as the stock returned -50.1% 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 many of these stocks already outperformed the market so far this year.
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.