At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Fidelity National Financial Inc (NYSE:FNF) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Fidelity National Financial Inc (NYSE:FNF) worth your attention right now? The smart money was in a bullish mood. The number of bullish hedge fund bets increased by 4 lately. Fidelity National Financial Inc (NYSE:FNF) was in 47 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FNF isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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' 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to take a glance at the new hedge fund action encompassing Fidelity National Financial Inc (NYSE:FNF).
What does smart money think about Fidelity National Financial Inc (NYSE:FNF)?
Heading into the third quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in FNF a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Windacre Partnership was the largest shareholder of Fidelity National Financial Inc (NYSE:FNF), with a stake worth $366.6 million reported as of the end of September. Trailing Windacre Partnership was Citadel Investment Group, which amassed a stake valued at $121.8 million. D E Shaw, AQR Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Fidelity National Financial Inc (NYSE:FNF), around 11.01% of its 13F portfolio. Parsifal Capital Management is also relatively very bullish on the stock, designating 6.71 percent of its 13F equity portfolio to FNF.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Windacre Partnership, managed by Snehal Amin, assembled the most outsized position in Fidelity National Financial Inc (NYSE:FNF). Windacre Partnership had $366.6 million invested in the company at the end of the quarter. Farhad Nanji and Michael DeMichele's MFN Partners also initiated a $42.9 million position during the quarter. The following funds were also among the new FNF investors: David Zorub's Parsifal Capital Management, Ravi Chopra's Azora Capital, and Gilchrist Berg's Water Street Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Fidelity National Financial Inc (NYSE:FNF) but similarly valued. These stocks are Huntington Bancshares Incorporated (NASDAQ:HBAN), Zynga Inc (NASDAQ:ZNGA), PulteGroup, Inc. (NYSE:PHM), Suzano S.A. (NYSE:SUZ), Vistra Corp. (NYSE:VST), MGM Growth Properties LLC (NYSE:MGP), and Kinross Gold Corporation (NYSE:KGC). All of these stocks' market caps are similar to FNF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HBAN,30,90448,1 ZNGA,52,1094586,-7 PHM,42,866135,6 SUZ,3,28866,0 VST,42,1561642,3 MGP,32,569697,4 KGC,30,806038,2 Average,33,716773,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $1052 million in FNF's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 bullish hedge fund positions. Fidelity National Financial Inc (NYSE:FNF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FNF is 83.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FNF wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FNF were disappointed as the stock returned 7.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.