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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Home Bancshares Inc (NASDAQ:HOMB), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Hedge fund interest in Home Bancshares Inc (NASDAQ:HOMB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare HOMB to other stocks including WNS (Holdings) Limited (NYSE:WNS), Manchester United PLC (NYSE:MANU), and Balchem Corporation (NASDAQ:BCPC) to get a better sense of its popularity.
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.
Dmitry Balyasny of Balyasny Asset Management
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. With all of this in mind let’s check out the key hedge fund action encompassing Home Bancshares Inc (NASDAQ:HOMB).
What have hedge funds been doing with Home Bancshares Inc (NASDAQ:HOMB)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in HOMB over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Balyasny Asset Management held the most valuable stake in Home Bancshares Inc (NASDAQ:HOMB), which was worth $4.2 million at the end of the third quarter. On the second spot was Basswood Capital which amassed $3.3 million worth of shares. GLG Partners, Holocene Advisors, and Citadel Investment Group 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 Signition LP allocated the biggest weight to Home Bancshares Inc (NASDAQ:HOMB), around 0.98% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, earmarking 0.71 percent of its 13F equity portfolio to HOMB.
Since Home Bancshares Inc (NASDAQ:HOMB) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers who were dropping their positions entirely last quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $1.3 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dumped its call options, about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Home Bancshares Inc (NASDAQ:HOMB). We will take a look at WNS (Holdings) Limited (NYSE:WNS), Manchester United PLC (NYSE:MANU), Balchem Corporation (NASDAQ:BCPC), and Investors Bancorp, Inc. (NASDAQ:ISBC). This group of stocks’ market caps are similar to HOMB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WNS | 20 | 227803 | 1 |
| MANU | 10 | 35986 | -2 |
| BCPC | 12 | 62978 | 3 |
| ISBC | 30 | 262465 | 2 |
| Average | 18 | 147308 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $14 million in HOMB’s case. Investors Bancorp, Inc. (NASDAQ:ISBC) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 10 bullish hedge fund positions. Home Bancshares Inc (NASDAQ:HOMB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 HOMB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HOMB investors were disappointed as the stock returned -43.1% 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 most of these stocks already outperformed the market in Q1.
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.
