Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
United Insurance Holdings Corp. (NASDAQ:UIHC) has experienced an increase in activity from the world's largest hedge funds of late. Our calculations also showed that UIHC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the new hedge fund action encompassing United Insurance Holdings Corp.(NASDAQ:UIHC).
What does smart money think about United Insurance Holdings Corp. (NASDAQ:UIHC)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in UIHC a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Polaris Capital Management was the largest shareholder of United Insurance Holdings Corp.(NASDAQ:UIHC), with a stake worth $2.4 million reported as of the end of March. Trailing Polaris Capital Management was Renaissance Technologies, which amassed a stake valued at $1.8 million. Millennium Management, Ancora Advisors, and Stadium Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were breaking ground themselves. Springbok Capital, managed by Gavin Saitowitz and Cisco J. del Valle, established the biggest position in United Insurance Holdings Corp. (NASDAQ:UIHC). Springbok Capital had $0 million invested in the company at the end of the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as United Insurance Holdings Corp. (NASDAQ:UIHC) but similarly valued. We will take a look at Midland States Bancorp, Inc. (NASDAQ:MSBI), Cytokinetics, Incorporated (NASDAQ:CYTK), Flushing Financial Corporation (NASDAQ:FFIC), and Customers Bancorp Inc (NYSE:CUBI). This group of stocks' market valuations are closest to UIHC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSBI,6,3340,2 CYTK,14,138145,-2 FFIC,8,44046,0 CUBI,12,45856,-1 Average,10,57847,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $7 million in UIHC's case. Cytokinetics, Incorporated (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Midland States Bancorp, Inc. (NASDAQ:MSBI) is the least popular one with only 6 bullish hedge fund positions. United Insurance Holdings Corp. (NASDAQ:UIHC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UIHC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UIHC investors were disappointed as the stock returned -1.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.