Hedge Fund Sentiment Is Stagnant On Heritage Financial Corporation (HFWA)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Hedge fund interest in Heritage Financial Corporation (NASDAQ:HFWA) shares’ was flat at the end of last quarter. This is usually a negative indicator. At the end of this article, we will also compare Heritage Financial Corporation (NASDAQ:HFWA) to other stocks, including Resources Connection, Inc. (NASDAQ:RECN), Forrester Research, Inc. (NASDAQ:FORR), and Vascular Solutions, Inc. (NASDAQ:VASC) to get a better sense of its popularity.

According to most investors, hedge funds are assumed to be slow, outdated investment tools of the past. While there are more than 8000 funds in operation at the moment, Our experts choose to focus on the top tier of this club, approximately 700 funds. It is estimated that this group of investors presides over the bulk of all hedge funds’ total capital, and by tracking their unrivaled equity investments, Insider Monkey has identified a few investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, let’s check out the key action regarding Heritage Financial Corporation (NASDAQ:HFWA).

How have hedgies been trading Heritage Financial Corporation (NASDAQ:HFWA)?

At the end of the previous quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, flat over the last quarter. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Forest Hill Capital, managed by Mark Lee, holds the number one position in Heritage Financial Corporation (NASDAQ:HFWA). Forest Hill Capital has a $41.4 million position in the stock, comprising 3.9% of its 13F portfolio. Coming in second is Castine Capital Management, managed by Paul Magidson, Jonathan Cohen and Ostrom Enders, which holds a $4.5 million position; 2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish encompass Paul Hondros’ AlphaOne Capital Partners, Renaissance Technologies, and Millennium Management Subsidiary’s Green Arrow Capital Management.

Due to the fact that Heritage Financial Corporation (NASDAQ:HFWA) has faced a falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies that decided to sell off their positions entirely in the third quarter. At the top of the heap, Fred Cummings’ Elizabeth Park Capital Management dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $5.5 million in stock. Robert Rodriguez and Steven Romick’s fund, First Pacific Advisors LLC, also dumped its stock, about $4.9 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Heritage Financial Corporation (NASDAQ:HFWA) but similarly valued. We will take a look at Resources Connection, Inc. (NASDAQ:RECN), Forrester Research, Inc. (NASDAQ:FORR), Vascular Solutions, Inc. (NASDAQ:VASC), and Kraton Performance Polymers Inc (NYSE:KRA). This group of stocks’ market caps is similar to Heritage Financial Corporation (NASDAQ:HFWA)’s market cap.

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 $66 million. That figure was $56 million in Heritage Financial Corporation (NASDAQ:HFWA)’s case. Kraton Performance Polymers Inc (NYSE:KRA) is the most popular stock in this table. On the other hand, Forrester Research, Inc. (NASDAQ:FORR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Heritage Financial Corporation (NASDAQ:HFWA) is even less popular than Forrester Research, Inc. (NASDAQ:FORR). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.