The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Preferred Bank (NASDAQ:PFBC) based on those filings.
Preferred Bank (NASDAQ:PFBC) investors should be aware of a decrease in support from the world’s most elite money managers lately. Our calculations also showed that PFBC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the fresh hedge fund action encompassing Preferred Bank (NASDAQ:PFBC).
What does smart money think about Preferred Bank (NASDAQ:PFBC)?
Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PFBC over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Preferred Bank (NASDAQ:PFBC) was held by Renaissance Technologies, which reported holding $13.9 million worth of stock at the end of September. It was followed by Basswood Capital with a $5.7 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Preferred Bank (NASDAQ:PFBC), around 0.66% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to PFBC.
Because Preferred Bank (NASDAQ:PFBC) has witnessed a decline in interest from the smart money, it’s safe to say that there was a specific group of hedgies that decided to sell off their full holdings heading into Q4. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the largest investment of all the hedgies tracked by Insider Monkey, totaling about $1 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also dumped its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Preferred Bank (NASDAQ:PFBC). These stocks are LeMaitre Vascular Inc (NASDAQ:LMAT), Camping World Holdings, Inc. (NYSE:CWH), Live Oak Bancshares Inc (NASDAQ:LOB), and Goldman Sachs BDC, Inc. (NYSE:GSBD). All of these stocks’ market caps are similar to PFBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LMAT | 6 | 4580 | -3 |
| CWH | 16 | 67549 | 1 |
| LOB | 10 | 25016 | 0 |
| GSBD | 1 | 1946 | -1 |
| Average | 8.25 | 24773 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $25 million in PFBC’s case. Camping World Holdings, Inc. (NYSE:CWH) is the most popular stock in this table. On the other hand Goldman Sachs BDC, Inc. (NYSE:GSBD) is the least popular one with only 1 bullish hedge fund positions. Preferred Bank (NASDAQ:PFBC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on PFBC, though not to the same extent, as the stock returned 25.5% during the second quarter and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
