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Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is First Financial Bancorp (NASDAQ:FFBC) a healthy stock for your portfolio? The smart money is in a bearish mood. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that FFBC 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.
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Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's go over the fresh hedge fund action encompassing First Financial Bancorp (NASDAQ:FFBC).
Hedge fund activity in First Financial Bancorp (NASDAQ:FFBC)
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in FFBC over the last 17 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, GLG Partners, managed by Noam Gottesman, holds the most valuable position in First Financial Bancorp (NASDAQ:FFBC). GLG Partners has a $4.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On GLG Partners's heels is Renaissance Technologies, founded by Jim Simons, which holds a $4.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish encompass Ken Griffin's Citadel Investment Group, Israel Englander's Millennium Management and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position GLG Partners allocated the biggest weight to First Financial Bancorp (NASDAQ:FFBC), around 0.02% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to FFBC.
Due to the fact that First Financial Bancorp (NASDAQ:FFBC) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few hedge funds who sold off their entire stakes in the third quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace cut the largest stake of all the hedgies monitored by Insider Monkey, comprising about $2.2 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its stock, about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as First Financial Bancorp (NASDAQ:FFBC) but similarly valued. These stocks are Altair Engineering Inc. (NASDAQ:ALTR), Spirit Airlines, Inc. (NYSE:SAVE), Cloudera, Inc. (NYSE:CLDR), and Columbia Property Trust Inc (NYSE:CXP). This group of stocks' market valuations are closest to FFBC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALTR,10,129177,-4 SAVE,24,183395,-7 CLDR,26,652627,1 CXP,14,69448,2 Average,18.5,258662,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $15 million in FFBC's case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks First Financial Bancorp (NASDAQ:FFBC) is even less popular than ALTR. Hedge funds dodged a bullet by taking a bearish stance towards FFBC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FFBC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FFBC investors were disappointed as the stock returned 0.3% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.