Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Boston Private Financial Holdings, Inc. (NASDAQ:BPFH).
Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. BPFH has seen a decrease in activity from the world’s largest hedge funds lately. There were 14 hedge funds in our database with BPFH positions at the end of the previous quarter. Our calculations also showed that BPFH 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. We’re going to take a glance at the new hedge fund action encompassing Boston Private Financial Holdings, Inc. (NASDAQ:BPFH).
What have hedge funds been doing with Boston Private Financial Holdings, Inc. (NASDAQ:BPFH)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in BPFH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) was held by Millennium Management, which reported holding $13 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $11.6 million position. Other investors bullish on the company included Select Equity Group, D E Shaw, and GAMCO Investors.
Judging by the fact that Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that decided to sell off their positions entirely heading into Q3. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $1 million in stock. Chuck Royce’s fund, Royce & Associates, also sold off its stock, about $0.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Boston Private Financial Holdings, Inc. (NASDAQ:BPFH). These stocks are Standard Motor Products, Inc. (NYSE:SMP), Columbus McKinnon Corporation (NASDAQ:CMCO), Eldorado Gold Corp (NYSE:EGO), and Sonic Automotive Inc (NYSE:SAH). All of these stocks’ market caps resemble BPFH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SMP | 11 | 105177 | -1 |
| CMCO | 20 | 77161 | -1 |
| EGO | 10 | 61879 | -1 |
| SAH | 11 | 26993 | 0 |
| Average | 13 | 67803 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $62 million in BPFH’s case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Eldorado Gold Corp (NYSE:EGO) is the least popular one with only 10 bullish hedge fund positions. Boston Private Financial Holdings, Inc.(NASDAQ:BPFH) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BPFH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BPFH investors were disappointed as the stock returned -2.2% 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.
