Hedge Funds Have Never Been This Bullish On Spirit of Texas Bancshares, Inc. (STXB)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Spirit of Texas Bancshares, Inc. (NASDAQ:STXB).

Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) shareholders have witnessed an increase in hedge fund interest in recent months. STXB was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. There were 1 hedge funds in our database with STXB holdings at the end of the previous quarter. Our calculations also showed that STXB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a glance at the new hedge fund action surrounding Spirit of Texas Bancshares, Inc. (NASDAQ:STXB).

How have hedgies been trading Spirit of Texas Bancshares, Inc. (NASDAQ:STXB)?

At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 300% from the second quarter of 2019. By comparison, 3 hedge funds held shares or bullish call options in STXB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mendon Capital Advisors, managed by Anton Schutz, holds the most valuable position in Spirit of Texas Bancshares, Inc. (NASDAQ:STXB). Mendon Capital Advisors has a $10.9 million position in the stock, comprising 1.8% of its 13F portfolio. The second largest stake is held by Castine Capital Management, managed by Paul Magidson, Jonathan Cohen. And Ostrom Enders, which holds a $3.6 million position; 1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and . In terms of the portfolio weights assigned to each position Mendon Capital Advisors allocated the biggest weight to Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), around 1.83% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, setting aside 0.97 percent of its 13F equity portfolio to STXB.

Now, specific money managers have jumped into Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) headfirst. Castine Capital Management, managed by Paul Magidson, Jonathan Cohen. And Ostrom Enders, established the largest position in Spirit of Texas Bancshares, Inc. (NASDAQ:STXB). Castine Capital Management had $3.6 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $1 million position during the quarter. The only other fund with a new position in the stock is John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s go over hedge fund activity in other stocks similar to Spirit of Texas Bancshares, Inc. (NASDAQ:STXB). These stocks are Civista Bancshares, Inc. (NASDAQ:CIVB), HighPoint Resources Corporation (NYSE:HPR), Allied Motion Technologies, Inc. (NASDAQ:AMOT), and Ashford Hospitality Trust, Inc. (NYSE:AHT). This group of stocks’ market values resemble STXB’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $16 million in STXB’s case. Allied Motion Technologies, Inc. (NASDAQ:AMOT) is the most popular stock in this table. On the other hand Civista Bancshares, Inc. (NASDAQ:CIVB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) is even less popular than CIVB. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on STXB, though not to the same extent, as the stock returned 6% during the fourth quarter (through 11/30) and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.