Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Independent Bank Group Inc (NASDAQ:IBTX).
Independent Bank Group Inc (NASDAQ:IBTX) was in 23 hedge funds’ portfolios at the end of December. IBTX investors should pay attention to an increase in hedge fund interest of late. There were 13 hedge funds in our database with IBTX holdings at the end of the previous quarter. Our calculations also showed that IBTX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action encompassing Independent Bank Group Inc (NASDAQ:IBTX).
How have hedgies been trading Independent Bank Group Inc (NASDAQ:IBTX)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 77% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IBTX over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Independent Bank Group Inc (NASDAQ:IBTX), with a stake worth $25.7 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $11.8 million. Azora Capital, Millennium Management, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Fourthstone LLC allocated the biggest weight to Independent Bank Group Inc (NASDAQ:IBTX), around 1.97% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, designating 1.6 percent of its 13F equity portfolio to IBTX.
As one would reasonably expect, some big names were breaking ground themselves. Azora Capital, managed by Ravi Chopra, initiated the largest position in Independent Bank Group Inc (NASDAQ:IBTX). Azora Capital had $11.3 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $8.5 million position during the quarter. The other funds with brand new IBTX positions are Noam Gottesman’s GLG Partners, Robert Emil Zoellner’s Alpine Associates, and D. E. Shaw’s D E Shaw.
Let’s go over hedge fund activity in other stocks similar to Independent Bank Group Inc (NASDAQ:IBTX). These stocks are Avis Budget Group Inc. (NASDAQ:CAR), National Beverage Corp. (NASDAQ:FIZZ), Invesco Mortgage Capital Inc (NYSE:IVR), and Carpenter Technology Corporation (NYSE:CRS). This group of stocks’ market valuations are similar to IBTX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAR | 27 | 1228226 | 4 |
| FIZZ | 21 | 309323 | 5 |
| IVR | 15 | 85307 | -4 |
| CRS | 16 | 73936 | 2 |
| Average | 19.75 | 424198 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $424 million. That figure was $104 million in IBTX’s case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Invesco Mortgage Capital Inc (NYSE:IVR) is the least popular one with only 15 bullish hedge fund positions. Independent Bank Group Inc (NASDAQ:IBTX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately IBTX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IBTX were disappointed as the stock returned -56.8% during the same time period 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 this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
