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Hedge Fund Sentiment Is Stagnant On Heartland Financial USA Inc (HTLF)

Nina Todic

Is Heartland Financial USA Inc (NASDAQ:HTLF) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Heartland Financial USA Inc (NASDAQ:HTLF) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of June. 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 Axos Financial, Inc. (NYSE:AX), NBT Bancorp Inc. (NASDAQ:NBTB), and Freshpet Inc (NASDAQ:FRPT) to gather more data points. Our calculations also showed that HTLF 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

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 take a peek at the new hedge fund action encompassing Heartland Financial USA Inc (NASDAQ:HTLF).

What have hedge funds been doing with Heartland Financial USA Inc (NASDAQ:HTLF)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HTLF over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HTLF Positions
No of Hedge Funds with HTLF Positions

More specifically, Renaissance Technologies was the largest shareholder of Heartland Financial USA Inc (NASDAQ:HTLF), with a stake worth $9.3 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $5.5 million. Marshall Wace LLP, PEAK6 Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Heartland Financial USA Inc (NASDAQ:HTLF) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds who were dropping their positions entirely by the end of the second quarter. Intriguingly, David Harding's Winton Capital Management cut the largest position of the 750 funds followed by Insider Monkey, worth about $0.4 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also said goodbye to its stock, about $0.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Heartland Financial USA Inc (NASDAQ:HTLF) but similarly valued. These stocks are Axos Financial, Inc. (NYSE:AX), NBT Bancorp Inc. (NASDAQ:NBTB), Freshpet Inc (NASDAQ:FRPT), and CSG Systems International, Inc. (NASDAQ:CSGS). All of these stocks' market caps resemble HTLF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AX,14,49005,1 NBTB,8,10119,2 FRPT,24,156672,-1 CSGS,18,215216,1 Average,16,107753,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $23 million in HTLF's case. Freshpet Inc (NASDAQ:FRPT) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Heartland Financial USA Inc (NASDAQ:HTLF) is even less popular than NBTB. Hedge funds dodged a bullet by taking a bearish stance towards HTLF. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HTLF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HTLF investors were disappointed as the stock returned 0.4% 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.

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