Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Heritage Insurance Holdings Inc (NYSE:HRTG).
Heritage Insurance Holdings Inc (NYSE:HRTG) was in 9 hedge funds' portfolios at the end of the first quarter of 2019. HRTG shareholders have witnessed an increase in enthusiasm from smart money of late. There were 6 hedge funds in our database with HRTG holdings at the end of the previous quarter. Our calculations also showed that hrtg 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' 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.
We're going to go over the latest hedge fund action regarding Heritage Insurance Holdings Inc (NYSE:HRTG).
Hedge fund activity in Heritage Insurance Holdings Inc (NYSE:HRTG)
Heading into the second quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in HRTG over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, holds the most valuable position in Heritage Insurance Holdings Inc (NYSE:HRTG). Polar Capital has a $14.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Royce & Associates, managed by Chuck Royce, which holds a $12.4 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish encompass Jim Simons's Renaissance Technologies, Ken Griffin's Citadel Investment Group and Cliff Asness's AQR Capital Management.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in Heritage Insurance Holdings Inc (NYSE:HRTG). Citadel Investment Group had $2.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.4 million investment in the stock during the quarter. The other funds with brand new HRTG positions are Michael Gelband's ExodusPoint Capital and Israel Englander's Millennium Management.
Let's also examine hedge fund activity in other stocks similar to Heritage Insurance Holdings Inc (NYSE:HRTG). We will take a look at Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI), RTI Surgical Holdings, Inc. (NASDAQ:RTIX), Akorn, Inc. (NASDAQ:AKRX), and Yintech Investment Holdings Limited (NASDAQ:YIN). This group of stocks' market caps are similar to HRTG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACBI,12,76229,-2 RTIX,14,41155,2 AKRX,16,64437,1 YIN,2,494,0 Average,11,45579,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $33 million in HRTG's case. Akorn, Inc. (NASDAQ:AKRX) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 2 bullish hedge fund positions. Heritage Insurance Holdings Inc (NYSE:HRTG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately HRTG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HRTG investors were disappointed as the stock returned 3.6% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.