Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Hallmark Financial Services, Inc. (NASDAQ:HALL).
Hallmark Financial Services, Inc. (NASDAQ:HALL) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that HALL 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.
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 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 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.
[caption id="attachment_338410" align="alignnone" width="2480"] Jeffrey Bronchick of Cove Street Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action surrounding Hallmark Financial Services, Inc. (NASDAQ:HALL).
What have hedge funds been doing with Hallmark Financial Services, Inc. (NASDAQ:HALL)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in HALL a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Cove Street Capital held the most valuable stake in Hallmark Financial Services, Inc. (NASDAQ:HALL), which was worth $20.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.3 million worth of shares. Intrinsic Edge Capital, Royce & Associates, and Winton Capital 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 Cove Street Capital allocated the biggest weight to Hallmark Financial Services, Inc. (NASDAQ:HALL), around 2.91% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to HALL.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Winton Capital Management, managed by David Harding, established the most outsized position in Hallmark Financial Services, Inc. (NASDAQ:HALL). Winton Capital Management had $1.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $0.9 million investment in the stock during the quarter. The other funds with brand new HALL positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Louis Navellier's Navellier & Associates, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Hallmark Financial Services, Inc. (NASDAQ:HALL). These stocks are MediciNova, Inc. (NASDAQ:MNOV), Citizens, Inc. (NYSE:CIA), Nam Tai Property Inc (NYSE:NTP), and Bridgewater Bancshares, Inc. (NASDAQ:BWB). This group of stocks' market values are closest to HALL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MNOV,2,3550,-2 CIA,2,2600,0 NTP,9,64699,2 BWB,10,23914,4 Average,5.75,23691,1 [/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 $24 million. That figure was $41 million in HALL's case. Bridgewater Bancshares, Inc. (NASDAQ:BWB) is the most popular stock in this table. On the other hand MediciNova, Inc. (NASDAQ:MNOV) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Hallmark Financial Services, Inc. (NASDAQ:HALL) 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. Unfortunately HALL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HALL were disappointed as the stock returned -0.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.