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 PacWest Bancorp (NASDAQ:PACW).
PacWest Bancorp (NASDAQ:PACW) investors should pay attention to an increase in enthusiasm from smart money of late. PACW was in 23 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with PACW holdings at the end of the previous quarter. Our calculations also showed that PACW 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’ 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.
Matthew Lindenbaum of Basswood Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing PacWest Bancorp (NASDAQ:PACW).
How are hedge funds trading PacWest Bancorp (NASDAQ:PACW)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in PACW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cardinal Capital held the most valuable stake in PacWest Bancorp (NASDAQ:PACW), which was worth $93.8 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $26.9 million worth of shares. Basswood Capital, Millennium Management, and Citadel Investment Group 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 Cardinal Capital allocated the biggest weight to PacWest Bancorp (NASDAQ:PACW), around 3.1% of its 13F portfolio. Second Curve Capital is also relatively very bullish on the stock, earmarking 2.44 percent of its 13F equity portfolio to PACW.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in PacWest Bancorp (NASDAQ:PACW). Balyasny Asset Management had $7.6 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $1.9 million position during the quarter. The other funds with brand new PACW positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Bruce Kovner’s Caxton Associates.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PacWest Bancorp (NASDAQ:PACW) but similarly valued. We will take a look at Aaron’s, Inc. (NYSE:AAN), argenx SE (NASDAQ:ARGX), Pure Storage, Inc. (NYSE:PSTG), and Graphic Packaging Holding Company (NYSE:GPK). This group of stocks’ market caps are similar to PACW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAN | 18 | 310016 | -4 |
| ARGX | 24 | 619897 | 2 |
| PSTG | 32 | 690528 | 9 |
| GPK | 33 | 500405 | 3 |
| Average | 26.75 | 530212 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $530 million. That figure was $251 million in PACW’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Aaron’s, Inc. (NYSE:AAN) is the least popular one with only 18 bullish hedge fund positions. PacWest Bancorp (NASDAQ:PACW) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PACW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PACW investors were disappointed as the stock returned 4.1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
