We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was PacWest Bancorp (NASDAQ:PACW).
PacWest Bancorp (NASDAQ:PACW) investors should pay attention to an increase in hedge fund sentiment in recent months. PACW was in 31 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with PACW positions at the end of the previous quarter. Our calculations also showed that PACW 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s analyze the key hedge fund action surrounding PacWest Bancorp (NASDAQ:PACW).
How have hedgies been trading PacWest Bancorp (NASDAQ:PACW)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PACW 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.
The largest stake in PacWest Bancorp (NASDAQ:PACW) was held by Cardinal Capital, which reported holding $111.1 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $26.9 million position. Other investors bullish on the company included Basswood Capital, Millennium Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to PacWest Bancorp (NASDAQ:PACW), around 3.39% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, earmarking 1.7 percent of its 13F equity portfolio to PACW.
As aggregate interest increased, specific money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, established the most outsized position in PacWest Bancorp (NASDAQ:PACW). Winton Capital Management had $6.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Steve Cohen’s Point72 Asset Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks similar to PacWest Bancorp (NASDAQ:PACW). These stocks are Chegg Inc (NYSE:CHGG), H&R Block, Inc. (NYSE:HRB), Intercorp Financial Services Inc. (NYSE:IFS), and J2 Global Inc (NASDAQ:JCOM). This group of stocks’ market values resemble PACW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHGG | 39 | 422147 | 3 |
| HRB | 30 | 420973 | 7 |
| IFS | 2 | 46514 | -1 |
| JCOM | 23 | 302223 | 4 |
| Average | 23.5 | 297964 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $298 million. That figure was $250 million in PACW’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. PacWest Bancorp (NASDAQ:PACW) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PACW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PACW were disappointed as the stock returned -52.6% 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.
