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 Independent Bank Group Inc (NASDAQ:IBTX).
Is Independent Bank Group Inc (NASDAQ:IBTX) undervalued? Prominent investors are buying. The number of long hedge fund bets moved up by 3 in recent months. Our calculations also showed that IBTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). IBTX was in 12 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with IBTX 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.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
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. Let’s take a gander at the latest hedge fund action surrounding Independent Bank Group Inc (NASDAQ:IBTX).
Hedge fund activity in Independent Bank Group Inc (NASDAQ:IBTX)
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IBTX over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in Independent Bank Group Inc (NASDAQ:IBTX), which was worth $22.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $16.7 million worth of shares. Mendon Capital Advisors, Elizabeth Park Capital Management, and Royce & Associates 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 Elizabeth Park Capital Management allocated the biggest weight to Independent Bank Group Inc (NASDAQ:IBTX), around 5.05% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 3.05 percent of its 13F equity portfolio to IBTX.
Now, some big names have jumped into Independent Bank Group Inc (NASDAQ:IBTX) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, established the largest position in Independent Bank Group Inc (NASDAQ:IBTX). Marshall Wace had $5.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to Independent Bank Group Inc (NASDAQ:IBTX). These stocks are Alarm.com Holdings, Inc. (NASDAQ:ALRM), Cadence Bancorporation (NYSE:CADE), Greif, Inc. (NYSE:GEF), and CareTrust REIT, Inc. (NASDAQ:CTRE). This group of stocks’ market valuations resemble IBTX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALRM | 18 | 162049 | -1 |
| CADE | 20 | 105054 | 2 |
| GEF | 14 | 76629 | -7 |
| CTRE | 15 | 106967 | -5 |
| Average | 16.75 | 112675 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $100 million in IBTX’s case. Cadence Bancorporation (NYSE:CADE) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Independent Bank Group Inc (NASDAQ:IBTX) is even less popular than GEF. 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 IBTX, though not to the same extent, as the stock returned 10.1% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
