The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Hilltop Holdings Inc. (NYSE:HTH) and find out how it is affected by hedge funds' moves.
Hilltop Holdings Inc. (NYSE:HTH) investors should pay attention to a decrease in support from the world's most elite money managers lately. Our calculations also showed that HTH isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the key hedge fund action encompassing Hilltop Holdings Inc. (NYSE:HTH).
What have hedge funds been doing with Hilltop Holdings Inc. (NYSE:HTH)?
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in HTH over the last 16 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Hilltop Holdings Inc. (NYSE:HTH), which was worth $21.8 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $17.6 million worth of shares. Moreover, Royce & Associates, GLG Partners, and D E Shaw were also bullish on Hilltop Holdings Inc. (NYSE:HTH), allocating a large percentage of their portfolios to this stock.
Since Hilltop Holdings Inc. (NYSE:HTH) has experienced a decline in interest from hedge fund managers, it's easy to see that there were a few funds that elected to cut their full holdings last quarter. Intriguingly, John R. Wagner's SCW Capital Management cut the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $10.9 million in stock. Paul Magidson, Jonathan Cohen. And Ostrom Enders's fund, Castine Capital Management, also cut its stock, about $5.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Hilltop Holdings Inc. (NYSE:HTH). We will take a look at Greif, Inc. (NYSE:GEF), International Speedway Corporation (NASDAQ:ISCA), LexinFintech Holdings Ltd. (NASDAQ:LX), and Builders FirstSource, Inc. (NASDAQ:BLDR). This group of stocks' market values match HTH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GEF,21,90122,0 ISCA,14,170355,-5 LX,15,77654,2 BLDR,35,418210,-2 Average,21.25,189085,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $108 million in HTH's case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand International Speedway Corporation (NASDAQ:ISCA) is the least popular one with only 14 bullish hedge fund positions. Hilltop Holdings Inc. (NYSE:HTH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HTH as the stock returned 12.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.