We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Heritage Commerce Corp. (NASDAQ:HTBK).
Heritage Commerce Corp. (NASDAQ:HTBK) was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. HTBK has seen an increase in support from the world’s most elite money managers in recent months. There were 8 hedge funds in our database with HTBK holdings at the end of the previous quarter. Our calculations also showed that HTBK 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.
Jim Simons of Renaissance Technologies
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to review the latest hedge fund action regarding Heritage Commerce Corp. (NASDAQ:HTBK).
Hedge fund activity in Heritage Commerce Corp. (NASDAQ:HTBK)
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the second quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in HTBK a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Heritage Commerce Corp. (NASDAQ:HTBK), with a stake worth $11.4 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.7 million. Millennium Management, Two Sigma Advisors, and D E Shaw 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 Marshall Wace allocated the biggest weight to Heritage Commerce Corp. (NASDAQ:HTBK), around 0.01% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to HTBK.
Consequently, key hedge funds have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the most outsized call position in Heritage Commerce Corp. (NASDAQ:HTBK). PEAK6 Capital Management had $1.2 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also initiated a $0 million position during the quarter.
Let’s go over hedge fund activity in other stocks similar to Heritage Commerce Corp. (NASDAQ:HTBK). We will take a look at Barings BDC, Inc. (NYSE:BBDC), Amalgamated Bank (NASDAQ:AMAL), Energy Recovery, Inc. (NASDAQ:ERII), and Ethan Allen Interiors Inc. (NYSE:ETH). This group of stocks’ market values are similar to HTBK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBDC | 10 | 29682 | -3 |
| AMAL | 12 | 60603 | 5 |
| ERII | 10 | 47610 | 0 |
| ETH | 14 | 62893 | -2 |
| Average | 11.5 | 50197 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $27 million in HTBK’s case. Ethan Allen Interiors Inc. (NYSE:ETH) is the most popular stock in this table. On the other hand Barings BDC, Inc. (NYSE:BBDC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Heritage Commerce Corp. (NASDAQ:HTBK) is even less popular than BBDC. 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 HTBK, though not to the same extent, as the stock returned 7.3% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
