Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze 1st Source Corporation (NASDAQ:SRCE) from the perspective of those elite funds.
1st Source Corporation (NASDAQ:SRCE) has seen a decrease in hedge fund sentiment of late. SRCE was in 6 hedge funds’ portfolios at the end of June. There were 9 hedge funds in our database with SRCE positions at the end of the previous quarter. Our calculations also showed that SRCE 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.
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 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 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 our short portfolio.
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. We’re going to view the new hedge fund action encompassing 1st Source Corporation (NASDAQ:SRCE).
How are hedge funds trading 1st Source Corporation (NASDAQ:SRCE)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SRCE over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in 1st Source Corporation (NASDAQ:SRCE), which was worth $14.8 million at the end of the second quarter. On the second spot was Millennium Management which amassed $7.3 million worth of shares. Moreover, AQR Capital Management, Citadel Investment Group, and D E Shaw were also bullish on 1st Source Corporation (NASDAQ:SRCE), allocating a large percentage of their portfolios to this stock.
Judging by the fact that 1st Source Corporation (NASDAQ:SRCE) has witnessed falling interest from the smart money, logic holds that there was a specific group of funds that elected to cut their positions entirely by the end of the second quarter. Intriguingly, Phil Frohlich’s Prescott Group Capital Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $0.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to 1st Source Corporation (NASDAQ:SRCE). These stocks are Hollysys Automation Technologies Ltd (NASDAQ:HOLI), TriCo Bancshares (NASDAQ:TCBK), Sculptor Capital Management, Inc. (NYSE:OZM), and Armada Hoffler Properties Inc (NYSE:AHH). This group of stocks’ market values resemble SRCE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HOLI | 13 | 68693 | -1 |
| TCBK | 8 | 36966 | -1 |
| OZM | 10 | 79555 | 2 |
| AHH | 9 | 66436 | -2 |
| Average | 10 | 62913 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $29 million in SRCE’s case. Hollysys Automation Technologies Ltd (NASDAQ:HOLI) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks 1st Source Corporation (NASDAQ:SRCE) is even less popular than TCBK. Hedge funds dodged a bullet by taking a bearish stance towards SRCE. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SRCE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SRCE investors were disappointed as the stock returned -0.9% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
