It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Opus Bank (NASDAQ:OPB).
Opus Bank (NASDAQ:OPB) was in 8 hedge funds’ portfolios at the end of September. OPB investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 9 hedge funds in our database with OPB holdings at the end of the previous quarter. Our calculations also showed that OPB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action encompassing Opus Bank (NASDAQ:OPB).
How are hedge funds trading Opus Bank (NASDAQ:OPB)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in OPB a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Opus Bank (NASDAQ:OPB) was held by Elliott Management, which reported holding $98.9 million worth of stock at the end of September. It was followed by Castine Capital Management with a $13.2 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Castine Capital Management allocated the biggest weight to Opus Bank (NASDAQ:OPB), around 3.6% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, setting aside 0.82 percent of its 13F equity portfolio to OPB.
Due to the fact that Opus Bank (NASDAQ:OPB) has experienced a decline in interest from hedge fund managers, logic holds that there exists a select few funds that elected to cut their positions entirely in the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $0.3 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $0.2 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Opus Bank (NASDAQ:OPB). We will take a look at Pacific Biosciences of California (NASDAQ:PACB), INTL Fcstone Inc (NASDAQ:INTL), Ingles Markets, Incorporated (NASDAQ:IMKTA), and Celestica Inc. (NYSE:CLS). This group of stocks’ market valuations resemble OPB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PACB | 23 | 132095 | 1 |
| INTL | 10 | 92507 | -1 |
| IMKTA | 12 | 59791 | -1 |
| CLS | 13 | 69373 | 1 |
| Average | 14.5 | 88442 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $127 million in OPB’s case. Pacific Biosciences of California (NASDAQ:PACB) is the most popular stock in this table. On the other hand INTL Fcstone Inc (NASDAQ:INTL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Opus Bank (NASDAQ:OPB) is even less popular than INTL. Hedge funds clearly dropped the ball on OPB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 OPB as the stock returned 18.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
