Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like First Bank (NASDAQ:FRBA).
First Bank (NASDAQ:FRBA) investors should be aware of an increase in enthusiasm from smart money recently. Our calculations also showed that FRBA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Price of MFP Investors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind we’re going to go over the fresh hedge fund action regarding First Bank (NASDAQ:FRBA).
How are hedge funds trading First Bank (NASDAQ:FRBA)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in FRBA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in First Bank (NASDAQ:FRBA), worth close to $2.4 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Michael Price of MFP Investors, with a $2.2 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions comprise Jeffrey Gendell’s Tontine Asset Management, David Harding’s Winton Capital Management and . In terms of the portfolio weights assigned to each position MFP Investors allocated the biggest weight to First Bank (NASDAQ:FRBA), around 0.3% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to FRBA.
With a general bullishness amongst the heavyweights, key money managers have jumped into First Bank (NASDAQ:FRBA) headfirst. Winton Capital Management, managed by David Harding, assembled the most outsized position in First Bank (NASDAQ:FRBA). Winton Capital Management had $0.4 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as First Bank (NASDAQ:FRBA) but similarly valued. We will take a look at Athersys, Inc. (NASDAQ:ATHX), Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX), Genie Energy Ltd (NYSE:GNE), and Net 1 UEPS Technologies Inc (NASDAQ:UEPS). This group of stocks’ market valuations resemble FRBA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATHX | 6 | 1741 | 1 |
| SNDX | 7 | 36930 | -1 |
| GNE | 12 | 10827 | 2 |
| UEPS | 12 | 68838 | 1 |
| Average | 9.25 | 29584 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $6 million in FRBA’s case. Genie Energy Ltd (NYSE:GNE) is the most popular stock in this table. On the other hand Athersys, Inc. (NASDAQ:ATHX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks First Bank (NASDAQ:FRBA) is even less popular than ATHX. Hedge funds dodged a bullet by taking a bearish stance towards FRBA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FRBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FRBA investors were disappointed as the stock returned 0.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.