We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards FirstCash, Inc. (NASDAQ:FCFS).
FirstCash, Inc. (NASDAQ:FCFS) investors should be aware of an increase in enthusiasm from smart money in recent months. FCFS was in 15 hedge funds' portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with FCFS holdings at the end of the previous quarter. Our calculations also showed that FCFS isn't among the 30 most popular stocks among hedge funds (view 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. Let's review the key hedge fund action surrounding FirstCash, Inc. (NASDAQ:FCFS).
Hedge fund activity in FirstCash, Inc. (NASDAQ:FCFS)
At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in FCFS a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in FirstCash, Inc. (NASDAQ:FCFS) was held by Renaissance Technologies, which reported holding $141 million worth of stock at the end of March. It was followed by Millennium Management with a $7.4 million position. Other investors bullish on the company included Marshall Wace LLP, D E Shaw, and AQR Capital Management.
As one would reasonably expect, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in FirstCash, Inc. (NASDAQ:FCFS). Marshall Wace LLP had $4.7 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Benjamin A. Smith's Laurion Capital Management, and Richard Driehaus's Driehaus Capital.
Let's now take a look at hedge fund activity in other stocks similar to FirstCash, Inc. (NASDAQ:FCFS). We will take a look at J2 Global Inc (NASDAQ:JCOM), Eastgroup Properties Inc (NYSE:EGP), Alcoa Corporation (NYSE:AA), and Pluralsight, Inc. (NASDAQ:PS). This group of stocks' market valuations are closest to FCFS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JCOM,24,309368,2 EGP,12,83709,5 AA,26,411683,-8 PS,20,212354,-10 Average,20.5,254279,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $172 million in FCFS's case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 12 bullish hedge fund positions. FirstCash, Inc. (NASDAQ:FCFS) 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 FCFS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FCFS investors were disappointed as the stock returned -8.1% 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.