Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Hometrust Bancshares Inc (NASDAQ:HTBI).
Hometrust Bancshares Inc (NASDAQ:HTBI) has experienced a decrease in hedge fund interest recently. HTBI was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with HTBI holdings at the end of the previous quarter. Our calculations also showed that HTBI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the latest hedge fund action surrounding Hometrust Bancshares Inc (NASDAQ:HTBI).
How are hedge funds trading Hometrust Bancshares Inc (NASDAQ:HTBI)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in HTBI a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Hometrust Bancshares Inc (NASDAQ:HTBI) was held by Impax Asset Management, which reported holding $23 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $21.1 million position. Other investors bullish on the company included Private Capital Management, Prospector Partners, and Royce & Associates.
Judging by the fact that Hometrust Bancshares Inc (NASDAQ:HTBI) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their entire stakes heading into Q3. At the top of the heap, Noam Gottesman’s GLG Partners sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $0.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Hometrust Bancshares Inc (NASDAQ:HTBI) but similarly valued. These stocks are Titan Machinery Inc. (NASDAQ:TITN), USA Technologies, Inc. (NASDAQ:USAT), SeaDrill Limited (NYSE:SDRL), and At Home Group Inc. (NYSE:HOME). This group of stocks’ market valuations match HTBI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TITN | 18 | 32752 | 6 |
| USAT | 12 | 116273 | -2 |
| SDRL | 18 | 121949 | -2 |
| HOME | 15 | 67444 | -17 |
| Average | 15.75 | 84605 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $66 million in HTBI’s case. Titan Machinery Inc. (NASDAQ:TITN) is the most popular stock in this table. On the other hand USA Technologies, Inc. (NASDAQ:USAT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Hometrust Bancshares Inc (NASDAQ:HTBI) is even less popular than USAT. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HTBI, though not to the same extent, as the stock returned 3.9% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
