Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in United Community Financial Corp (NASDAQ:UCFC)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in United Community Financial Corp (NASDAQ:UCFC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare UCFC to other stocks including Hawkins, Inc. (NASDAQ:HWKN), New Gold Inc. (NYSEAMEX:NGD), and Overstock.com, Inc. (NASDAQ:OSTK) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a gander at the key hedge fund action regarding United Community Financial Corp (NASDAQ:UCFC).
What does the smart money think about United Community Financial Corp (NASDAQ:UCFC)?
At Q4's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UCFC over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in United Community Financial Corp (NASDAQ:UCFC) was held by Renaissance Technologies, which reported holding $18.5 million worth of stock at the end of December. It was followed by Elizabeth Park Capital Management with a $9.4 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Ancora Advisors.
Because United Community Financial Corp (NASDAQ:UCFC) has experienced a decline in interest from hedge fund managers, we can see that there were a few hedge funds that decided to sell off their full holdings heading into Q3. Interestingly, Ken Griffin's Citadel Investment Group sold off the biggest position of the 700 funds tracked by Insider Monkey, comprising an estimated $0.4 million in stock, and Roger Ibbotson's Zebra Capital Management was right behind this move, as the fund sold off about $0.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to United Community Financial Corp (NASDAQ:UCFC). These stocks are Hawkins, Inc. (NASDAQ:HWKN), New Gold Inc. (NYSEAMEX:NGD), Overstock.com, Inc. (NASDAQ:OSTK), and CURO Group Holdings Corp. (NYSE:CURO). This group of stocks' market values resemble UCFC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HWKN,9,8181,0 NGD,15,42598,1 OSTK,10,20369,-6 CURO,10,76163,-6 Average,11,36828,-2.75 [/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 $37 million. That figure was $31 million in UCFC's case. New Gold Inc. (NYSEAMEX:NGD) is the most popular stock in this table. On the other hand Hawkins, Inc. (NASDAQ:HWKN) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks United Community Financial Corp (NASDAQ:UCFC) is even less popular than HWKN. Hedge funds dodged a bullet by taking a bearish stance towards UCFC. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately UCFC wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); UCFC investors were disappointed as the stock returned 5.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.