Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Seacoast Banking Corporation of Florida (NASDAQ:SBCF).
Seacoast Banking Corporation of Florida (NASDAQ:SBCF) has experienced a decrease in support from the world’s most elite money managers recently. SBCF was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. There were 8 hedge funds in our database with SBCF holdings at the end of the previous quarter. Our calculations also showed that SBCF 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 check out the latest hedge fund action encompassing Seacoast Banking Corporation of Florida (NASDAQ:SBCF).
Hedge fund activity in Seacoast Banking Corporation of Florida (NASDAQ:SBCF)
At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBCF over the last 16 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Seacoast Banking Corporation of Florida (NASDAQ:SBCF), which was worth $22.9 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $9.5 million worth of shares. Moreover, Mendon Capital Advisors, Basswood Capital, and GAMCO Investors were also bullish on Seacoast Banking Corporation of Florida (NASDAQ:SBCF), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Seacoast Banking Corporation of Florida (NASDAQ:SBCF) has experienced bearish sentiment from the smart money, it’s safe to say that there is a sect of money managers that elected to cut their full holdings heading into Q3. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $0.9 million in stock. David Harding’s fund, Winton Capital Management, also cut its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to Seacoast Banking Corporation of Florida (NASDAQ:SBCF). We will take a look at OneSmart International Education Group Limited (NYSE:ONE), S&T Bancorp, Inc. (NASDAQ:STBA), Monmouth Real Estate Investment Corporation (NYSE:MNR), and Hudson Ltd. (NYSE:HUD). This group of stocks’ market values are closest to SBCF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONE | 7 | 49934 | 1 |
| STBA | 11 | 19238 | 7 |
| MNR | 13 | 62448 | 4 |
| HUD | 12 | 32562 | -3 |
| Average | 10.75 | 41046 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $42 million in SBCF’s case. Monmouth Real Estate Investment Corporation (NYSE:MNR) is the most popular stock in this table. On the other hand OneSmart International Education Group Limited (NYSE:ONE) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is even less popular than ONE. Hedge funds dodged a bullet by taking a bearish stance towards SBCF. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SBCF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SBCF investors were disappointed as the stock returned -0.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
