Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) to find out whether it was one of their high conviction long-term ideas.
Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) has experienced a decrease in support from the world’s most elite money managers lately. HOMB was in 13 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with HOMB holdings at the end of the previous quarter. Our calculations also showed that HOMB isn’t among the 30 most popular stocks among hedge funds (view 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. Let’s go over the latest hedge fund action surrounding Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB).
How have hedgies been trading Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the first quarter of 2019. By comparison, 12 hedge funds held shares or bullish call options in HOMB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Balyasny Asset Management held the most valuable stake in Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), which was worth $10.8 million at the end of the second quarter. On the second spot was GLG Partners which amassed $5.1 million worth of shares. Moreover, Basswood Capital, Skylands Capital, and D E Shaw were also bullish on Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) has experienced a decline in interest from the smart money, logic holds that there were a few hedgies who were dropping their positions entirely last quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $1.6 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also cut its stock, about $1.3 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB). We will take a look at Vermilion Energy Inc (NYSE:VET), Cabot Microelectronics Corporation (NASDAQ:CCMP), FTI Consulting, Inc. (NYSE:FCN), and Novanta Inc. (NASDAQ:NOVT). All of these stocks’ market caps resemble HOMB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VET | 7 | 9671 | 1 |
| CCMP | 13 | 293721 | -4 |
| FCN | 17 | 128300 | 0 |
| NOVT | 13 | 70468 | -4 |
| Average | 12.5 | 125540 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $26 million in HOMB’s case. FTI Consulting, Inc. (NYSE:FCN) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 7 bullish hedge fund positions. Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 HOMB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HOMB were disappointed as the stock returned -1.7% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
