It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in First Bancorp (NYSE:FBP).
Is First Bancorp (NYSE:FBP) worth your attention right now? Investors who are in the know are reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that FBP 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.
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 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 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.
[caption id="attachment_25717" align="aligncenter" width="440"] Steven Cohen of Point72 Asset Management[/caption]
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 look at the fresh hedge fund action surrounding First Bancorp (NYSE:FBP).
What does smart money think about First Bancorp (NYSE:FBP)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in FBP a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Alyeska Investment Group was the largest shareholder of First Bancorp (NYSE:FBP), with a stake worth $46.1 million reported as of the end of September. Trailing Alyeska Investment Group was Millennium Management, which amassed a stake valued at $43.9 million. Point72 Asset Management, Two Sigma Advisors, and D E Shaw 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 Azora Capital allocated the biggest weight to First Bancorp (NYSE:FBP), around 1.56% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, dishing out 0.7 percent of its 13F equity portfolio to FBP.
Because First Bancorp (NYSE:FBP) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers who sold off their full holdings by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund cut about $2.5 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to First Bancorp (NYSE:FBP). We will take a look at PagerDuty, Inc. (NYSE:PD), ProAssurance Corporation (NYSE:PRA), Steelcase Inc. (NYSE:SCS), and Penn National Gaming, Inc (NASDAQ:PENN). This group of stocks' market caps are similar to FBP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PD,11,15240,-11 PRA,15,203495,0 SCS,21,120765,2 PENN,23,227001,3 Average,17.5,141625,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $198 million in FBP's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand PagerDuty, Inc. (NYSE:PD) is the least popular one with only 11 bullish hedge fund positions. First Bancorp (NYSE:FBP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 FBP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FBP were disappointed as the stock returned 5.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.