Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
1st Source Corporation (NASDAQ:SRCE) investors should pay attention to an increase in hedge fund interest recently. SRCE was in 8 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with SRCE positions at the end of the previous quarter. Our calculations also showed that SRCE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding 1st Source Corporation (NASDAQ:SRCE).
How have hedgies been trading 1st Source Corporation (NASDAQ:SRCE)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRCE over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in 1st Source Corporation (NASDAQ:SRCE) was held by Renaissance Technologies, which reported holding $15.3 million worth of stock at the end of September. It was followed by Millennium Management with a $5.2 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to 1st Source Corporation (NASDAQ:SRCE), around 0.01% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to SRCE.
As aggregate interest increased, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in 1st Source Corporation (NASDAQ:SRCE). Arrowstreet Capital had $1.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.4 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as 1st Source Corporation (NASDAQ:SRCE) but similarly valued. We will take a look at Par Pacific Holdings, Inc. (NYSE:PARR), Delphi Technologies PLC (NYSE:DLPH), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), and FB Financial Corporation (NYSE:FBK). This group of stocks’ market values are similar to SRCE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PARR | 15 | 106837 | 1 |
| DLPH | 19 | 195756 | -6 |
| CCO | 43 | 334472 | 11 |
| FBK | 7 | 80971 | 3 |
| Average | 21 | 179509 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $30 million in SRCE’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 7 bullish hedge fund positions. 1st Source Corporation (NASDAQ:SRCE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SRCE as the stock returned 13.1% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
