Hedge Funds Souring On Veritex Holdings Inc (VBTX)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Veritex Holdings Inc (NASDAQ:VBTX) based on those filings.

Is Veritex Holdings Inc (NASDAQ:VBTX) a buy, sell, or hold? Investors who are in the know are in a bearish mood. The number of long hedge fund bets fell by 1 lately. Our calculations also showed that VBTX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the top 15 defense contractors in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action encompassing Veritex Holdings Inc (NASDAQ:VBTX).

What does smart money think about Veritex Holdings Inc (NASDAQ:VBTX)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VBTX over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Mendon Capital Advisors was the largest shareholder of Veritex Holdings Inc (NASDAQ:VBTX), with a stake worth $14.5 million reported as of the end of September. Trailing Mendon Capital Advisors was Millennium Management, which amassed a stake valued at $6.9 million. Forest Hill Capital, Citadel Investment Group, and Arrowstreet Capital 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 Mendon Capital Advisors allocated the biggest weight to Veritex Holdings Inc (NASDAQ:VBTX), around 7.11% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 2.91 percent of its 13F equity portfolio to VBTX.

Due to the fact that Veritex Holdings Inc (NASDAQ:VBTX) has witnessed bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies who were dropping their full holdings by the end of the first quarter. Intriguingly, Fred Cummings’s Elizabeth Park Capital Management sold off the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $3 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dropped about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Veritex Holdings Inc (NASDAQ:VBTX) but similarly valued. These stocks are INMODE LTD. (NASDAQ:INMD), Homology Medicines, Inc. (NASDAQ:FIXX), MFA Financial, Inc. (NYSE:MFA), and Ovintiv Inc. (NYSE:OVV). This group of stocks’ market values are closest to VBTX’s market value.

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 $54 million. That figure was $35 million in VBTX’s case. Ovintiv Inc. (NYSE:OVV) is the most popular stock in this table. On the other hand INMODE LTD. (NASDAQ:INMD) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Veritex Holdings Inc (NASDAQ:VBTX) is even less popular than INMD. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on VBTX, though not to the same extent, as the stock returned 26% during the second quarter (through June 22nd) and outperformed the market as well.

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