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Hedge Funds Started Cashing Out Of First American Financial Corp (FAF)

Asma UL Husna

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of First American Financial Corp (NYSE:FAF).

Is First American Financial Corp (NYSE:FAF) worth your attention right now? Money managers are getting less bullish. The number of long hedge fund bets were trimmed by 2 recently. Our calculations also showed that FAF isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FAF was in 40 hedge funds' portfolios at the end of the first quarter of 2020. There were 42 hedge funds in our database with FAF positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a large number of methods market participants have at their disposal to analyze publicly traded companies. A couple of the best methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top money managers can outclass the broader indices by a superb amount (see the details here).

[caption id="attachment_26335" align="aligncenter" width="399"] Ken Fisher of Fisher Asset Management[/caption]

Ken Fisher FISHER ASSET MANAGEMENT

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a gander at the recent hedge fund action encompassing First American Financial Corp (NYSE:FAF).

What does smart money think about First American Financial Corp (NYSE:FAF)?

At Q1's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FAF over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ariel Investments was the largest shareholder of First American Financial Corp (NYSE:FAF), with a stake worth $136.8 million reported as of the end of September. Trailing Ariel Investments was AQR Capital Management, which amassed a stake valued at $76.1 million. Citadel Investment Group, Fisher Asset Management, and Two Sigma Advisors 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 Ariel Investments allocated the biggest weight to First American Financial Corp (NYSE:FAF), around 2.4% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, earmarking 1.17 percent of its 13F equity portfolio to FAF.

Due to the fact that First American Financial Corp (NYSE:FAF) has faced falling interest from hedge fund managers, we can see that there is a sect of funds who were dropping their positions entirely in the third quarter. At the top of the heap, Clint Carlson's Carlson Capital said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, totaling about $77 million in stock. Joe DiMenna's fund, ZWEIG DIMENNA PARTNERS, also dumped its stock, about $15.9 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to First American Financial Corp (NYSE:FAF). We will take a look at PG&E Corporation (NYSE:PCG), Nuance Communications Inc. (NASDAQ:NUAN), AECOM (NYSE:ACM), and Paylocity Holding Corp (NASDAQ:PCTY). All of these stocks' market caps resemble FAF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PCG,48,1984927,-2 NUAN,42,764864,3 ACM,39,670829,3 PCTY,33,409592,7 Average,40.5,957553,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $958 million. That figure was $526 million in FAF's case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Paylocity Holding Corp (NASDAQ:PCTY) is the least popular one with only 33 bullish hedge fund positions. First American Financial Corp (NYSE:FAF) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on FAF, though not to the same extent, as the stock returned 19.1% during the second quarter and outperformed the market.

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Disclosure: None. This article was originally published at Insider Monkey.

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