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 Central Valley Community Bancorp (NASDAQ:CVCY)? The smart money sentiment can provide an answer to this question.
Central Valley Community Bancorp (NASDAQ:CVCY) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of September. At the end of this article we will also compare CVCY to other stocks including BayCom Corp (NASDAQ:BCML), SEACOR Marine Holdings Inc. (NYSE:SMHI), and Rayonier Advanced Materials Inc (NYSE:RYAM) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to view the new hedge fund action regarding Central Valley Community Bancorp (NASDAQ:CVCY).
How are hedge funds trading Central Valley Community Bancorp (NASDAQ:CVCY)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in CVCY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Elizabeth Park Capital Management, managed by Fred Cummings, holds the largest position in Central Valley Community Bancorp (NASDAQ:CVCY). Elizabeth Park Capital Management has a $12.2 million position in the stock, comprising 4.8% of its 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $3.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Central Valley Community Bancorp (NASDAQ:CVCY), around 4.82% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.15 percent of its 13F equity portfolio to CVCY.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Central Valley Community Bancorp (NASDAQ:CVCY) but similarly valued. We will take a look at BayCom Corp (NASDAQ:BCML), SEACOR Marine Holdings Inc. (NYSE:SMHI), Rayonier Advanced Materials Inc (NYSE:RYAM), and Northwest Pipe Company (NASDAQ:NWPX). This group of stocks’ market valuations match CVCY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BCML | 5 | 25945 | 1 |
| SMHI | 6 | 27404 | -1 |
| RYAM | 11 | 30864 | -12 |
| NWPX | 11 | 37764 | 1 |
| Average | 8.25 | 30494 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $16 million in CVCY’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand BayCom Corp (NASDAQ:BCML) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Central Valley Community Bancorp (NASDAQ:CVCY) is even less popular than BCML. Hedge funds dodged a bullet by taking a bearish stance towards CVCY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CVCY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CVCY investors were disappointed as the stock returned 4.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.