Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Meta Financial Group Inc. (NASDAQ:CASH).
Meta Financial Group Inc. (NASDAQ:CASH) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Matthews International Corp (NASDAQ:MATW), Apollo Investment Corp. (NASDAQ:AINV), and Southside Bancshares, Inc. (NASDAQ:SBSI) to gather more data points. Our calculations also showed that CASH isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the latest hedge fund action surrounding Meta Financial Group Inc. (NASDAQ:CASH).
What does smart money think about Meta Financial Group Inc. (NASDAQ:CASH)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in CASH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Nantahala Capital Management was the largest shareholder of Meta Financial Group Inc. (NASDAQ:CASH), with a stake worth $50.5 million reported as of the end of March. Trailing Nantahala Capital Management was Steamboat Capital Partners, which amassed a stake valued at $26.1 million. Second Curve Capital, Hawk Ridge Management, and Driehaus Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Meta Financial Group Inc. (NASDAQ:CASH) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely heading into Q3. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $0.6 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dropped its stock, about $0.3 million worth. 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 review hedge fund activity in other stocks – not necessarily in the same industry as Meta Financial Group Inc. (NASDAQ:CASH) but similarly valued. We will take a look at Matthews International Corp (NASDAQ:MATW), Apollo Investment Corp. (NASDAQ:AINV), Southside Bancshares, Inc. (NASDAQ:SBSI), and CBIZ, Inc. (NYSE:CBZ). This group of stocks’ market caps resemble CASH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MATW | 13 | 40498 | 1 |
| AINV | 6 | 30182 | -3 |
| SBSI | 7 | 59491 | 0 |
| CBZ | 14 | 150330 | -2 |
| Average | 10 | 70125 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $123 million in CASH’s case. CBIZ, Inc. (NYSE:CBZ) is the most popular stock in this table. On the other hand Apollo Investment Corp. (NASDAQ:AINV) is the least popular one with only 6 bullish hedge fund positions. Meta Financial Group Inc. (NASDAQ:CASH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CASH as the stock returned 16.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
