At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
TowneBank (NASDAQ:TOWN) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. At the end of this article we will also compare TOWN to other stocks including OSI Systems, Inc. (NASDAQ:OSIS), Gabelli Equity Trust Inc (NYSE:GAB), and Endurance International Group Hldgs Inc (NASDAQ:EIGI) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, let’s take a look at the new action surrounding TowneBank (NASDAQ:TOWN).
Hedge fund activity in TowneBank (NASDAQ:TOWN)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TOWN over the last 5 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the largest position in TowneBank (NASDAQ:TOWN), worth close to $16 million, comprising less than 0.1% of its total 13F portfolio. Coming in second is Lawrence Seidman of Seidman Investment Partnership, with a $14.7 million position; 10.3% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Michael Price’s MFP Investors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management. We should note that MFP Investors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: McKinley Capital 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 Millennium Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TowneBank (NASDAQ:TOWN) but similarly valued. These stocks are OSI Systems, Inc. (NASDAQ:OSIS), Gabelli Equity Trust Inc (NYSE:GAB), Endurance International Group Hldgs Inc (NASDAQ:EIGI), and Asbury Automotive Group, Inc. (NYSE:ABG). This group of stocks’ market values are closest to TOWN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OSIS | 15 | 56323 | 4 |
| GAB | 4 | 5189 | 4 |
| EIGI | 7 | 66146 | 1 |
| ABG | 21 | 425623 | 1 |
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $49 million in TOWN’s case. Asbury Automotive Group, Inc. (NYSE:ABG) is the most popular stock in this table. On the other hand Gabelli Equity Trust Inc (NYSE:GAB) is the least popular one with only 4 bullish hedge fund positions. TowneBank (NASDAQ:TOWN) 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. In this regard ABG might be a better candidate to consider taking a long position in.
Disclosure: None
