Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Flushing Financial Corporation (NASDAQ:FFIC).
Hedge fund interest in Flushing Financial Corporation (NASDAQ:FFIC) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Dorchester Minerals LP (NASDAQ:DMLP), The Manitowoc Company, Inc. (NYSE:MTW), and Luther Burbank Corporation (NASDAQ:LBC) to gather more data points. Our calculations also showed that FFIC 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 recent hedge fund action encompassing Flushing Financial Corporation (NASDAQ:FFIC).
How are hedge funds trading Flushing Financial Corporation (NASDAQ:FFIC)?
At Q2's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FFIC over the last 16 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Mario Gabelli's GAMCO Investors has the number one position in Flushing Financial Corporation (NASDAQ:FFIC), worth close to $24.3 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $13.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Israel Englander's Millennium Management, Cliff Asness's AQR Capital Management and D. E. Shaw's D E Shaw.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the second quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks similar to Flushing Financial Corporation (NASDAQ:FFIC). We will take a look at Dorchester Minerals LP (NASDAQ:DMLP), The Manitowoc Company, Inc. (NYSE:MTW), Luther Burbank Corporation (NASDAQ:LBC), and WideOpenWest, Inc. (NYSE:WOW). All of these stocks' market caps resemble FFIC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DMLP,7,40466,1 MTW,13,110489,-7 LBC,7,9917,1 WOW,8,15124,-3 Average,8.75,43999,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $44 million in FFIC's case. The Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand Dorchester Minerals LP (NASDAQ:DMLP) is the least popular one with only 7 bullish hedge fund positions. Flushing Financial Corporation (NASDAQ:FFIC) 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 FFIC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FFIC 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.