Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Horizon Bancorp (NASDAQ:HBNC).
Horizon Bancorp (NASDAQ:HBNC) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. HBNC was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with HBNC positions at the end of the previous quarter. Our calculations also showed that HBNC 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.
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’ 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.
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. Let’s go over the key hedge fund action regarding Horizon Bancorp (NASDAQ:HBNC).
How are hedge funds trading Horizon Bancorp (NASDAQ:HBNC)?
At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in HBNC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Horizon Bancorp (NASDAQ:HBNC) was held by Renaissance Technologies, which reported holding $18 million worth of stock at the end of March. It was followed by Millennium Management with a $2.2 million position. Other investors bullish on the company included Minerva Advisors, D E Shaw, and Citadel Investment Group.
Consequently, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the largest position in Horizon Bancorp (NASDAQ:HBNC). Millennium Management had $2.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new HBNC position is Mario Gabelli’s GAMCO Investors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Horizon Bancorp (NASDAQ:HBNC) but similarly valued. We will take a look at Arvinas, Inc. (NASDAQ:ARVN), Cornerstone Building Brands, Inc. (NYSE:CNR), Modine Manufacturing Company (NYSE:MOD), and ADTRAN, Inc. (NASDAQ:ADTN). This group of stocks’ market values are similar to HBNC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARVN | 13 | 152734 | -1 |
| CNR | 15 | 63239 | -2 |
| MOD | 20 | 78255 | 3 |
| ADTN | 13 | 85342 | -2 |
| Average | 15.25 | 94893 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $23 million in HBNC’s case. Modine Manufacturing Company (NYSE:MOD) is the most popular stock in this table. On the other hand Arvinas, Inc. (NASDAQ:ARVN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Horizon Bancorp (NASDAQ:HBNC) is even less popular than ARVN. Hedge funds clearly dropped the ball on HBNC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HBNC as the stock returned 7% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
