Should I Buy West Bancorporation, Inc. (WTBA)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of West Bancorporation, Inc. (NASDAQ:WTBA) based on that data.

West Bancorporation, Inc. (NASDAQ:WTBA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that WTBA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare WTBA to other stocks including G. Willi-Food International Limited (NASDAQ:WILC), Genius Brands International, Inc. (NASDAQ:GNUS), and Cabaletta Bio, Inc. (NASDAQ:CABA) to get a better sense of its popularity.

Video: 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 S&P 500 ETFs by 66 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to review the latest hedge fund action encompassing West Bancorporation, Inc. (NASDAQ:WTBA).

How are hedge funds trading West Bancorporation, Inc. (NASDAQ:WTBA)?

At third quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WTBA over the last 21 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of West Bancorporation, Inc. (NASDAQ:WTBA), with a stake worth $6.1 million reported as of the end of September. Trailing Renaissance Technologies was Winton Capital Management, which amassed a stake valued at $0.4 million. Arrowstreet Capital was 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 Winton Capital Management allocated the biggest weight to West Bancorporation, Inc. (NASDAQ:WTBA), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to WTBA.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Arrowstreet Capital).

Let’s go over hedge fund activity in other stocks similar to West Bancorporation, Inc. (NASDAQ:WTBA). These stocks are G. Willi-Food International Limited (NASDAQ:WILC), Genius Brands International, Inc. (NASDAQ:GNUS), Cabaletta Bio, Inc. (NASDAQ:CABA), NantHealth, Inc. (NASDAQ:NH), Northwest Pipe Company (NASDAQ:NWPX), Escalade, Inc. (NASDAQ:ESCA), and InfuSystem Holdings, Inc. (NYSE:INFU). This group of stocks’ market values are similar to WTBA’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $7 million in WTBA’s case. InfuSystem Holdings, Inc. (NYSE:INFU) is the most popular stock in this table. On the other hand Genius Brands International, Inc. (NASDAQ:GNUS) is the least popular one with only 2 bullish hedge fund positions. West Bancorporation, Inc. (NASDAQ:WTBA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WTBA is 25. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on WTBA as the stock returned 22.5% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.