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At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not HMN Financial, Inc. (NASDAQ:HMNF) makes for a good investment right now.
Is HMN Financial, Inc. (NASDAQ:HMNF) the right pick for your portfolio? Prominent investors were becoming less confident. The number of long hedge fund bets dropped by 1 in recent months. HMN Financial, Inc. (NASDAQ:HMNF) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 4. Our calculations also showed that HMNF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 4 hedge funds in our database with HMNF positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phil Stone of Fourthstone LLC
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's take a glance at the fresh hedge fund action regarding HMN Financial, Inc. (NASDAQ:HMNF).
How have hedgies been trading HMN Financial, Inc. (NASDAQ:HMNF)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in HMNF over the last 21 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.
Among these funds, Fourthstone LLC held the most valuable stake in HMN Financial, Inc. (NASDAQ:HMNF), which was worth $6.4 million at the end of the third quarter. On the second spot was Tontine Asset Management which amassed $3.9 million worth of shares. Renaissance Technologies was 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 Fourthstone LLC allocated the biggest weight to HMN Financial, Inc. (NASDAQ:HMNF), around 5.38% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, designating 0.83 percent of its 13F equity portfolio to HMNF.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Castine Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified HMNF as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as HMN Financial, Inc. (NASDAQ:HMNF) but similarly valued. These stocks are Vince Holding Corp (NYSE:VNCE), Network-1 Technologies Inc (NYSE:NTIP), Cocrystal Pharma, Inc. (NASDAQ:COCP), Blueknight Energy Partners L.P. (NASDAQ:BKEP), Aridis Pharmaceuticals Inc. (NASDAQ:ARDS), Daxor Corporation (NYSE:DXR), and OFS Capital Corp (NASDAQ:OFS). This group of stocks' market valuations are closest to HMNF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNCE,2,1582,-3 NTIP,2,3810,0 COCP,4,8747,3 BKEP,3,5649,1 ARDS,1,80,0 DXR,2,2393,1 OFS,2,252,-1 Average,2.3,3216,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $12 million in HMNF's case. Cocrystal Pharma, Inc. (NASDAQ:COCP) is the most popular stock in this table. On the other hand Aridis Pharmaceuticals Inc. (NASDAQ:ARDS) is the least popular one with only 1 bullish hedge fund positions. HMN Financial, Inc. (NASDAQ:HMNF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HMNF is 59.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Hedge funds were also right about betting on HMNF as the stock returned 22.2% since the end of Q3 (through 11/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.