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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 Hilltop Holdings Inc. (NYSE:HTH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Hilltop Holdings Inc. (NYSE:HTH) the right investment to pursue these days? Investors who are in the know were becoming more confident. The number of long hedge fund bets advanced by 8 recently. Hilltop Holdings Inc. (NYSE:HTH) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HTH 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). There were 15 hedge funds in our database with HTH positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 lithium company which could also benefit from the electric car adoption. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a look at the fresh hedge fund action encompassing Hilltop Holdings Inc. (NYSE:HTH).
What does smart money think about Hilltop Holdings Inc. (NYSE:HTH)?
Heading into the third quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 53% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in HTH a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Azora Capital held the most valuable stake in Hilltop Holdings Inc. (NYSE:HTH), which was worth $16.2 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $15.1 million worth of shares. Renaissance Technologies, Royce & Associates, and Forest Hill Capital 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 Castine Capital Management allocated the biggest weight to Hilltop Holdings Inc. (NYSE:HTH), around 4.79% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, setting aside 3 percent of its 13F equity portfolio to HTH.
Consequently, specific money managers have jumped into Hilltop Holdings Inc. (NYSE:HTH) headfirst. Azora Capital, managed by Ravi Chopra, created the largest position in Hilltop Holdings Inc. (NYSE:HTH). Azora Capital had $16.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $15.1 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Louis Bacon's Moore Global Investments, and Dmitry Balyasny's Balyasny Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hilltop Holdings Inc. (NYSE:HTH) but similarly valued. These stocks are 8x8, Inc. (NYSE:EGHT), Onto Innovation Inc. (NYSE:ONTO), Compass Minerals International, Inc. (NYSE:CMP), Osisko Gold Royalties Ltd (NYSE:OR), Callaway Golf Company (NYSE:ELY), Big Lots, Inc. (NYSE:BIG), and Zymeworks Inc. (NYSE:ZYME). All of these stocks' market caps are similar to HTH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EGHT,21,417819,1 ONTO,17,161796,6 CMP,18,62058,2 OR,15,143014,2 ELY,24,277158,1 BIG,22,247501,7 ZYME,31,601363,4 Average,21.1,272958,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $108 million in HTH's case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Osisko Gold Royalties Ltd (NYSE:OR) is the least popular one with only 15 bullish hedge fund positions. Hilltop Holdings Inc. (NYSE:HTH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HTH is 65. 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. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on HTH as the stock returned 12% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.