Hedge Funds Are Buying Bank Mutual Corporation (BKMU)

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a foolproof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data, though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Bank Mutual Corporation (NASDAQ:BKMU) investors should be aware of a slight increase in hedge fund sentiment of late, as the stock has advanced by 13% since the beginning of the year and the bank has recently embarked on a cost-cutting campaign. Let’s take a closer look at how the funds we track have been trading BKMU lately.

At the end of this article we will also compare BKMU to other stocks, including One Liberty Properties, Inc. (NYSE:OLP), Freshpet Inc (NASDAQ:FRPT), and Guaranty Bancorp (NASDAQ:GBNK) to get a better sense of its popularity.

According to most investors, hedge funds are seen as slow, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation today, We choose to focus on the elite of this group, approximately 700 funds. These hedge fund managers control bulk of the hedge fund industry’s total capital, and by keeping track of their top picks, Insider Monkey has unsheathed numerous investment strategies that have historically outrun the 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 review the latest action surrounding Bank Mutual Corporation (NASDAQ:BKMU).

How are hedge funds trading Bank Mutual Corporation (NASDAQ:BKMU)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 20% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in Bank Mutual Corporation (NASDAQ:BKMU). Renaissance Technologies has a $10.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is John Overdeck and David Siegel of Two Sigma Advisors, with a $0.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism contain Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw, and Ken Griffin’s Citadel Investment Group.

Consequently, specific money managers have been driving this bullishness. Among them, Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Bank Mutual Corporation (NASDAQ:BKMU). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bank Mutual Corporation (NASDAQ:BKMU) but similarly valued. We will take a look at One Liberty Properties, Inc. (NYSE:OLP), Freshpet Inc (NASDAQ:FRPT), Guaranty Bancorp (NASDAQ:GBNK), and Financial Institutions, Inc. (NASDAQ:FISI). This group of stocks’ market values resemble BKMU’s market value.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $28 million, higher than the $12 million in BKMU’s case. Guaranty Bancorp (NASDAQ:GBNK) is the most popular stock in this table, while One Liberty Properties, Inc. (NYSE:OLP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Bank Mutual Corporation (NASDAQ:BKMU) is even less popular than OLP. 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.