Hedge Funds Are Dumping First Community Bancshares Inc (FCBC)

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Is First Community Bancshares Inc (NASDAQ:FCBC) a bargain? The stock is not very popular among the funds we track, with only six investors reporting long positions as of the end of September, even though it had a solid performance so far, gaining 19% year-to-date. However, 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 Aegean Marine Petroleum Network Inc. (NYSE:ANW), Arbutus Biopharma Corp (NASDAQ:ABUS), and NACCO Industries, Inc. (NYSE:NC) to gather more data points.

To most shareholders, hedge funds are viewed as underperforming, old investment vehicles of the past. While there are over 8000 funds in operation today, We choose to focus on the elite of this group, about 700 funds. It is estimated that this group of investors preside over the majority of the hedge fund industry’s total capital, and by tailing their matchless stock picks, Insider Monkey has figured out many investment strategies that have historically outpaced 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.

Keeping this in mind, we’re going to take a look at the recent action surrounding First Community Bancshares Inc (NASDAQ:FCBC).

Hedge fund activity in First Community Bancshares Inc (NASDAQ:FCBC)

At the Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 14% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Jim Simons’ Renaissance Technologies has the most valuable position in First Community Bancshares Inc (NASDAQ:FCBC), worth close to $3.6 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Bryn Mawr Capital, managed by Ken Gray and Steve Walsh, which holds a $1.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Israel Englander’s Millennium Management.

Moreover, there was only a single hedge fund selling its entire position: Nine Chapters Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified FCBC as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as First Community Bancshares Inc (NASDAQ:FCBC) but similarly valued. We will take a look at Aegean Marine Petroleum Network Inc. (NYSE:ANW), Arbutus Biopharma Corp (NASDAQ:ABUS), NACCO Industries, Inc. (NYSE:NC), and Egalet Corp (NASDAQ:EGLT). This group of stocks’ market values are similar to FCBC’s market value.

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 $71 million. In comparison, the funds we track have amassed only $7 million worth of FCBC’s stock. Aegean Marine Petroleum Network Inc. (NYSE:ANW) is the most popular stock in this table. On the other hand NACCO Industries, Inc. (NYSE:NC) is the least popular one with only 5 bullish hedge fund positions. First Community Bancshares Inc (NASDAQ:FCBC) 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 ANW might be a better candidate to consider a long position.