Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze FRP Holdings Inc (NASDAQ:FRPH) from the perspective of those elite funds.
FRP Holdings Inc (NASDAQ:FRPH) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of December. At the end of this article we will also compare FRPH to other stocks including LeMaitre Vascular Inc (NASDAQ:LMAT), BP Prudhoe Bay Royalty Trust (NYSE:BPT), and Arrow Financial Corporation (NASDAQ:AROW) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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.
Let's go over the latest hedge fund action regarding FRP Holdings Inc (NASDAQ:FRPH).
How have hedgies been trading FRP Holdings Inc (NASDAQ:FRPH)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 8 hedge funds with a bullish position in FRPH a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of FRP Holdings Inc (NASDAQ:FRPH), with a stake worth $26.1 million reported as of the end of December. Trailing Royce & Associates was Third Avenue Management, which amassed a stake valued at $5.7 million. Intrepid Capital Management, Sprott Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
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 third 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 now take a look at hedge fund activity in other stocks - not necessarily in the same industry as FRP Holdings Inc (NASDAQ:FRPH) but similarly valued. These stocks are LeMaitre Vascular Inc (NASDAQ:LMAT), BP Prudhoe Bay Royalty Trust (NYSE:BPT), Arrow Financial Corporation (NASDAQ:AROW), and Barings BDC, Inc. (NYSE:BBDC). This group of stocks' market values are closest to FRPH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMAT,6,10434,-2 BPT,4,4888,0 AROW,3,11071,-1 BBDC,10,11904,1 Average,5.75,9574,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $44 million in FRPH's case. Barings BDC, Inc. (NYSE:BBDC) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 3 bullish hedge fund positions. FRP Holdings Inc (NASDAQ:FRPH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FRPH wasn't nearly as popular as these 15 stock and hedge funds that were betting on FRPH were disappointed as the stock returned 13.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.