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 Colony Bankcorp Inc (NASDAQ:CBAN).
Is Colony Bankcorp Inc (NASDAQ:CBAN) ready to rally soon? The best stock pickers are getting less optimistic. The number of long hedge fund positions shrunk by 1 in recent months. Our calculations also showed that CBAN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CBAN was in 3 hedge funds’ portfolios at the end of September. There were 4 hedge funds in our database with CBAN positions at the end of the previous quarter.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the recent hedge fund action encompassing Colony Bankcorp Inc (NASDAQ:CBAN).
Hedge fund activity in Colony Bankcorp Inc (NASDAQ:CBAN)
At Q3’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CBAN over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Colony Bankcorp Inc (NASDAQ:CBAN) was held by Polaris Capital Management, which reported holding $6.2 million worth of stock at the end of September. It was followed by Tontine Asset Management with a $1.8 million position. The only other hedge fund that is bullish on the company was Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: EJF Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CBAN as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Colony Bankcorp Inc (NASDAQ:CBAN) but similarly valued. These stocks are StoneCastle Financial Corp (NASDAQ:BANX), G. Willi-Food International Ltd. (NASDAQ:WILC), The ExOne Company (NASDAQ:XONE), and Pareteum Corporation (NASDAQ:TEUM). This group of stocks’ market valuations are similar to CBAN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BANX | 1 | 222 | 0 |
| WILC | 2 | 18900 | 0 |
| XONE | 4 | 1501 | -1 |
| TEUM | 5 | 3839 | 2 |
| Average | 3 | 6116 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $10 million in CBAN’s case. Pareteum Corporation (NASDAQ:TEUM) is the most popular stock in this table. On the other hand StoneCastle Financial Corp (NASDAQ:BANX) is the least popular one with only 1 bullish hedge fund positions. Colony Bankcorp Inc (NASDAQ:CBAN) is not the least popular stock in this group but hedge fund interest is still below average. 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 CBAN, though not to the same extent, as the stock returned 6.1% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.