Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is First American Financial Corp (NYSE:FAF), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
First American Financial Corp (NYSE:FAF) has seen an increase in support from the world's most elite money managers of late. FAF was in 35 hedge funds' portfolios at the end of the third quarter of 2019. There were 34 hedge funds in our database with FAF positions at the end of the previous quarter. Our calculations also showed that FAF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="600"] Clint Carlson of Carlson Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the key hedge fund action surrounding First American Financial Corp (NYSE:FAF).
How are hedge funds trading First American Financial Corp (NYSE:FAF)?
At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in FAF a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in First American Financial Corp (NYSE:FAF), which was worth $221.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $111.1 million worth of shares. Citadel Investment Group, Carlson Capital, and Fisher Asset 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 Lunia Capital allocated the biggest weight to First American Financial Corp (NYSE:FAF), around 3.83% of its portfolio. 12th Street Asset Management is also relatively very bullish on the stock, designating 3.48 percent of its 13F equity portfolio to FAF.
Now, key hedge funds have jumped into First American Financial Corp (NYSE:FAF) headfirst. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, created the largest position in First American Financial Corp (NYSE:FAF). ZWEIG DIMENNA PARTNERS had $17.8 million invested in the company at the end of the quarter. Peter Seuss's Prana Capital Management also made a $6.9 million investment in the stock during the quarter. The following funds were also among the new FAF investors: Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Michael Gelband's ExodusPoint Capital, and Curtis Schenker and Craig Effron's Scoggin.
Let's now take a look at hedge fund activity in other stocks similar to First American Financial Corp (NYSE:FAF). We will take a look at American Campus Communities, Inc. (NYSE:ACC), XPO Logistics Inc (NYSE:XPO), Dunkin Brands Group Inc (NASDAQ:DNKN), and GCI Liberty, Inc. (NASDAQ:GLIBA). This group of stocks' market valuations resemble FAF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACC,19,407788,2 XPO,23,2709456,-1 DNKN,24,193861,1 GLIBA,34,2003406,-4 Average,25,1328628,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1329 million. That figure was $905 million in FAF's case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand American Campus Communities, Inc. (NYSE:ACC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks First American Financial Corp (NYSE:FAF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FAF, though not to the same extent, as the stock returned 7.8% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.