We at Insider Monkey have gone over 738 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Fanhua Inc. (NASDAQ:FANH) based on that data.
Is Fanhua Inc. (NASDAQ:FANH) the right pick for your portfolio? The smart money is taking a bullish view. The number of long hedge fund positions inched up by 1 recently. Our calculations also showed that FANH isn't among the 30 most popular stocks among hedge funds. FANH was in 10 hedge funds' portfolios at the end of the first quarter of 2019. There were 9 hedge funds in our database with FANH holdings at the end of the previous quarter.
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 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 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.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's check out the new hedge fund action encompassing Fanhua Inc. (NASDAQ:FANH).
What have hedge funds been doing with Fanhua Inc. (NASDAQ:FANH)?
At Q1's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FANH over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the largest position in Fanhua Inc. (NASDAQ:FANH), worth close to $7.2 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $3.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Cliff Asness's AQR Capital Management, Jim Simons's Renaissance Technologies and David Harding's Winton Capital Management.
As industrywide interest jumped, some big names have been driving this bullishness. Stevens Capital Management, managed by Matthew Tewksbury, established the largest position in Fanhua Inc. (NASDAQ:FANH). Stevens Capital Management had $0.4 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group and Simon Sadler's Segantii Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Fanhua Inc. (NASDAQ:FANH) but similarly valued. These stocks are Meritage Homes Corp (NYSE:MTH), Hilltop Holdings Inc. (NYSE:HTH), Delphi Technologies PLC (NYSE:DLPH), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). This group of stocks' market values resemble FANH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTH,14,177350,1 HTH,19,123299,5 DLPH,24,274206,6 CORE,24,76068,4 Average,20.25,162731,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $15 million in FANH's case. Delphi Technologies PLC (NYSE:DLPH) is the most popular stock in this table. On the other hand Meritage Homes Corp (NYSE:MTH) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Fanhua Inc. (NASDAQ:FANH) is even less popular than MTH. Hedge funds clearly dropped the ball on FANH as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on FANH as the stock returned 21.2% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.