Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
FirstCash, Inc. (NASDAQ:FCFS) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Univar Inc (NYSE:UNVR), Penske Automotive Group, Inc. (NYSE:PAG), and Graphic Packaging Holding Company (NYSE:GPK) to gather more data points.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Let's take a peek at the recent hedge fund action regarding FirstCash, Inc. (NASDAQ:FCFS).
What does smart money think about FirstCash, Inc. (NASDAQ:FCFS)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in FCFS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Jim Simons's Renaissance Technologies has the largest position in FirstCash, Inc. (NASDAQ:FCFS), worth close to $132.3 million, accounting for 0.1% of its total 13F portfolio. Coming in second is GLG Partners, led by Noam Gottesman, holding a $10.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions comprise Israel Englander's Millennium Management, D. E. Shaw's D E Shaw and Cliff Asness's AQR Capital Management.
Because FirstCash, Inc. (NASDAQ:FCFS) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers that elected to cut their full holdings last quarter. At the top of the heap, Ken Griffin's Citadel Investment Group dropped the biggest position of all the hedgies watched by Insider Monkey, totaling about $0.6 million in stock. Phil Frohlich's fund, Prescott Group Capital Management, also cut its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as FirstCash, Inc. (NASDAQ:FCFS) but similarly valued. We will take a look at Univar Inc (NYSE:UNVR), Penske Automotive Group, Inc. (NYSE:PAG), Graphic Packaging Holding Company (NYSE:GPK), and The Brink's Company (NYSE:BCO). All of these stocks' market caps resemble FCFS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNVR,42,1098378,19 PAG,18,70927,-5 GPK,24,639511,4 BCO,25,490686,3 Average,27.25,574876,5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $165 million in FCFS's case. Univar Inc (NYSE:UNVR) is the most popular stock in this table. On the other hand Penske Automotive Group, Inc. (NYSE:PAG) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks FirstCash, Inc. (NASDAQ:FCFS) is even less popular than PAG. Hedge funds clearly dropped the ball on FCFS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on FCFS as the stock returned 14.4% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.