Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Universal Insurance Holdings, Inc. (NYSE:UVE) the right investment to pursue these days? The smart money is taking an optimistic view. The number of bullish hedge fund bets went up by 6 recently. Our calculations also showed that UVE isn't among the 30 most popular stocks among hedge funds.
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' 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a glance at the fresh hedge fund action encompassing Universal Insurance Holdings, Inc. (NYSE:UVE).
Hedge fund activity in Universal Insurance Holdings, Inc. (NYSE:UVE)
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in UVE a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Universal Insurance Holdings, Inc. (NYSE:UVE) was held by AQR Capital Management, which reported holding $16.1 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $9.9 million position. Other investors bullish on the company included GLG Partners, Two Sigma Advisors, and Royce & Associates.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. D E Shaw, managed by D. E. Shaw, initiated the largest call position in Universal Insurance Holdings, Inc. (NYSE:UVE). D E Shaw had $1.7 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $0.7 million position during the quarter. The following funds were also among the new UVE investors: Benjamin A. Smith's Laurion Capital Management, Ron Bobman's Capital Returns Management, and Ronald Hua's Qtron Investments.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Universal Insurance Holdings, Inc. (NYSE:UVE) but similarly valued. We will take a look at Nevsun Resources Ltd. (NYSE:NSU), S & T Bancorp Inc (NASDAQ:STBA), Gazit Globe Ltd. (NYSE:GZT), and Alexander & Baldwin Inc (NYSE:ALEX). This group of stocks' market caps are similar to UVE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSU,12,141823,-3 STBA,8,4752,2 GZT,4,13411,0 ALEX,10,25598,2 Average,8.5,46396,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $41 million in UVE's case. Nevsun Resources Ltd. (NYSE:NSU) is the most popular stock in this table. On the other hand Gazit Globe Ltd. (NYSE:GZT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Universal Insurance Holdings, Inc. (NYSE:UVE) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately UVE wasn't nearly as popular as these 15 stock and hedge funds that were betting on UVE were disappointed as the stock returned -22.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.