Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in United Community Banks Inc (NASDAQ:UCBI) 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 UCBI to other stocks including Nabors Industries Ltd. (NYSE:NBR), Shutterfly, Inc. (NASDAQ:SFLY), and Terreno Realty Corporation (NYSE:TRNO) to get a better sense of its popularity.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the new hedge fund action surrounding United Community Banks Inc (NASDAQ:UCBI).
Hedge fund activity in United Community Banks Inc (NASDAQ:UCBI)
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in UCBI heading into this year. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of United Community Banks Inc (NASDAQ:UCBI), with a stake worth $31.2 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $14 million. AQR Capital Management, D E Shaw, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Because United Community Banks Inc (NASDAQ:UCBI) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies who sold off their entire stakes heading into Q3. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $6.2 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $1.1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as United Community Banks Inc (NASDAQ:UCBI) but similarly valued. These stocks are Nabors Industries Ltd. (NYSE:NBR), Shutterfly, Inc. (NASDAQ:SFLY), Terreno Realty Corporation (NYSE:TRNO), and Cadence Bancorporation (NYSE:CADE). This group of stocks’ market caps are closest to UCBI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NBR | 39 | 440817 | 2 |
| SFLY | 23 | 550402 | -4 |
| TRNO | 12 | 62944 | 3 |
| CADE | 19 | 323041 | 3 |
| Average | 23.25 | 344301 | 1 |
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 $344 million. That figure was $75 million in UCBI’s case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 12 bullish hedge fund positions. United Community Banks Inc (NASDAQ:UCBI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NBR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
