Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in American River Bankshares (NASDAQ:AMRB)? The smart money sentiment can provide an answer to this question.
American River Bankshares (NASDAQ:AMRB) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. At the end of this article we will also compare AMRB to other stocks including Marinus Pharmaceuticals Inc (NASDAQ:MRNS), Trevi Therapeutics, Inc. (NASDAQ:TRVI), and Aquestive Therapeutics, Inc. (NASDAQ:AQST) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_735636" align="alignnone" width="1613"] Matthew Lindenbaum of Basswood Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to go over the latest hedge fund action surrounding American River Bankshares (NASDAQ:AMRB).
What does smart money think about American River Bankshares (NASDAQ:AMRB)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in AMRB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American River Bankshares (NASDAQ:AMRB) was held by Basswood Capital, which reported holding $7.8 million worth of stock at the end of September. It was followed by Firefly Value Partners with a $4.3 million position. The only other hedge fund that is bullish on the company was Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: MFP Investors. 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 Renaissance Technologies).
Let's now take a look at hedge fund activity in other stocks similar to American River Bankshares (NASDAQ:AMRB). We will take a look at Marinus Pharmaceuticals Inc (NASDAQ:MRNS), Trevi Therapeutics, Inc. (NASDAQ:TRVI), Aquestive Therapeutics, Inc. (NASDAQ:AQST), and Hunt Companies Finance Trust, Inc. (NYSE:HCFT). This group of stocks' market valuations are closest to AMRB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRNS,7,14518,-5 TRVI,2,835,-1 AQST,3,7355,-1 HCFT,3,4995,-2 Average,3.75,6926,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $12 million in AMRB's case. Marinus Pharmaceuticals Inc (NASDAQ:MRNS) is the most popular stock in this table. On the other hand Trevi Therapeutics, Inc. (NASDAQ:TRVI) is the least popular one with only 2 bullish hedge fund positions. American River Bankshares (NASDAQ:AMRB) is not the least popular stock in this group but hedge fund interest is still below average. 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 AMRB as the stock returned 12.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.