Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is East West Bancorp, Inc. (NASDAQ:EWBC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
East West Bancorp, Inc. (NASDAQ:EWBC) shareholders have witnessed a decrease in hedge fund sentiment lately. Our calculations also showed that EWBC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most investors, hedge funds are viewed as underperforming, old investment vehicles of the past. While there are greater than 8000 funds trading at the moment, Our experts hone in on the masters of this club, approximately 850 funds. These investment experts command most of the hedge fund industry’s total capital, and by following their inimitable stock picks, Insider Monkey has identified many investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action encompassing East West Bancorp, Inc. (NASDAQ:EWBC).
How are hedge funds trading East West Bancorp, Inc. (NASDAQ:EWBC)?
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EWBC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in East West Bancorp, Inc. (NASDAQ:EWBC), which was worth $74.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $74.2 million worth of shares. Carlson Capital, Two Sigma Advisors, and Adage Capital Management were 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 Mountain Road Advisors allocated the biggest weight to East West Bancorp, Inc. (NASDAQ:EWBC), around 1.56% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 1.31 percent of its 13F equity portfolio to EWBC.
Due to the fact that East West Bancorp, Inc. (NASDAQ:EWBC) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that slashed their positions entirely in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $29.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $6.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as East West Bancorp, Inc. (NASDAQ:EWBC) but similarly valued. We will take a look at Owens Corning (NYSE:OC), BRF S.A. (NYSE:BRFS), CAE, Inc. (NYSE:CAE), and Chemed Corporation (NYSE:CHE). This group of stocks’ market caps are closest to EWBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OC | 47 | 1080101 | 4 |
| BRFS | 14 | 119708 | 0 |
| CAE | 10 | 138012 | -1 |
| CHE | 22 | 399646 | -1 |
| Average | 23.25 | 434367 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $434 million. That figure was $521 million in EWBC’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. East West Bancorp, Inc. (NASDAQ:EWBC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately EWBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EWBC were disappointed as the stock returned -38.7% during the same time period 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 this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
