Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.3% in 2019 and outperformed the broader market benchmark by 10.1 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Investors Bancorp, Inc. (NASDAQ:ISBC) has experienced an increase in enthusiasm from smart money recently. ISBC was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with ISBC holdings at the end of the previous quarter. Our calculations also showed that ISBC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s go over the key hedge fund action regarding Investors Bancorp, Inc. (NASDAQ:ISBC).
Hedge fund activity in Investors Bancorp, Inc. (NASDAQ:ISBC)
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in ISBC 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.
More specifically, Blue Harbour Group was the largest shareholder of Investors Bancorp, Inc. (NASDAQ:ISBC), with a stake worth $310.3 million reported as of the end of September. Trailing Blue Harbour Group was Citadel Investment Group, which amassed a stake valued at $90.8 million. Azora Capital, Renaissance Technologies, and Millennium 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 Blue Harbour Group allocated the biggest weight to Investors Bancorp, Inc. (NASDAQ:ISBC), around 18.19% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, dishing out 12.67 percent of its 13F equity portfolio to ISBC.
As industrywide interest jumped, some big names have jumped into Investors Bancorp, Inc. (NASDAQ:ISBC) headfirst. Holocene Advisors, managed by Brandon Haley, established the largest position in Investors Bancorp, Inc. (NASDAQ:ISBC). Holocene Advisors had $1.1 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new ISBC investors: Michael Gelband’s ExodusPoint Capital, Minhua Zhang’s Weld Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Investors Bancorp, Inc. (NASDAQ:ISBC) but similarly valued. These stocks are Paramount Group Inc (NYSE:PGRE), Cantel Medical Corp. (NYSE:CMD), Virtu Financial Inc (NASDAQ:VIRT), and TreeHouse Foods Inc. (NYSE:THS). This group of stocks’ market valuations match ISBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGRE | 18 | 293248 | 5 |
| CMD | 11 | 149052 | 0 |
| VIRT | 13 | 89772 | -3 |
| THS | 18 | 241573 | 1 |
| Average | 15 | 193411 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $585 million in ISBC’s case. Paramount Group Inc (NYSE:PGRE) is the most popular stock in this table. On the other hand Cantel Medical Corp. (NYSE:CMD) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Investors Bancorp, Inc. (NASDAQ:ISBC) is more popular among hedge funds. 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. Unfortunately ISBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ISBC were disappointed as the stock returned 19% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
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.
