Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards HCI Group, Inc. (NYSE:HCI) to find out whether it was one of their high conviction long-term ideas.
Is HCI Group, Inc. (NYSE:HCI) going to take off soon? The best stock pickers are becoming hopeful. The number of long hedge fund positions advanced by 2 recently. Our calculations also showed that HCI isn't among the 30 most popular stocks among hedge funds.
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 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.
We're going to view the recent hedge fund action surrounding HCI Group, Inc. (NYSE:HCI).
How are hedge funds trading HCI Group, Inc. (NYSE:HCI)?
At Q4's end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCI over the last 14 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in HCI Group, Inc. (NYSE:HCI), which was worth $10.3 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $7.1 million worth of shares. Moreover, GLG Partners, Winton Capital Management, and Arrowgrass Capital Partners were also bullish on HCI Group, Inc. (NYSE:HCI), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, initiated the most valuable position in HCI Group, Inc. (NYSE:HCI). Empyrean Capital Partners had $5.1 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $3.5 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's go over hedge fund activity in other stocks similar to HCI Group, Inc. (NYSE:HCI). These stocks are Osiris Therapeutics, Inc. (NASDAQ:OSIR), Caesarstone Ltd. (NASDAQ:CSTE), Nicolet Bankshares Inc. (NASDAQ:NCBS), and FRP Holdings, Inc. (NASDAQ:FRPH). This group of stocks' market valuations resemble HCI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSIR,8,11044,4 CSTE,6,15251,3 NCBS,3,3172,-1 FRPH,7,44007,0 Average,6,18369,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $30 million in HCI's case. Osiris Therapeutics, Inc. (NASDAQ:OSIR) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks HCI Group, Inc. (NYSE:HCI) is more popular among hedge funds. 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 HCI wasn't nearly as popular as these 15 stock and hedge funds that were betting on HCI were disappointed as the stock returned -18.4% 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.
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