Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
The First Bancshares, Inc. (MS) (NASDAQ:FBMS) was in 5 hedge funds’ portfolios at the end of the fourth quarter of 2018. FBMS has seen a decrease in hedge fund sentiment of late. There were 7 hedge funds in our database with FBMS positions at the end of the previous quarter. Our calculations also showed that FBMS isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
We’re going to take a glance at the latest hedge fund action encompassing The First Bancshares, Inc. (MS) (NASDAQ:FBMS).
How have hedgies been trading The First Bancshares, Inc. (MS) (NASDAQ:FBMS)?
At Q4’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in FBMS a year ago. 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, Mendon Capital Advisors held the most valuable stake in The First Bancshares, Inc. (MS) (NASDAQ:FBMS), which was worth $14 million at the end of the fourth quarter. On the second spot was Castine Capital Management which amassed $11.3 million worth of shares. Moreover, Forest Hill Capital, Renaissance Technologies, and Two Sigma Advisors were also bullish on The First Bancshares, Inc. (MS) (NASDAQ:FBMS), allocating a large percentage of their portfolios to this stock.
Judging by the fact that The First Bancshares, Inc. (MS) (NASDAQ:FBMS) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies that elected to cut their positions entirely in the third quarter. Interestingly, Joe DiMenna’s ZWEIG DIMENNA PARTNERS sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $0.5 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dropped about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The First Bancshares, Inc. (MS) (NASDAQ:FBMS) but similarly valued. These stocks are Access National Corporation (NASDAQ:ANCX), CAI International Inc (NYSE:CAI), Resources Connection, Inc. (NASDAQ:RECN), and Golden Entertainment Inc (NASDAQ:GDEN). This group of stocks’ market caps resemble FBMS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANCX | 2 | 11005 | -1 |
| CAI | 17 | 102799 | 2 |
| RECN | 13 | 37849 | 0 |
| GDEN | 12 | 117180 | -5 |
| Average | 11 | 67208 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $29 million in FBMS’s case. CAI International Inc (NYSE:CAI) is the most popular stock in this table. On the other hand Access National Corporation (NASDAQ:ANCX) is the least popular one with only 2 bullish hedge fund positions. The First Bancshares, Inc. (MS) (NASDAQ:FBMS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FBMS wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); FBMS investors were disappointed as the stock returned -0.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
