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In this article we will check out the progression of hedge fund sentiment towards International Bancshares Corp (NASDAQ:IBOC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is International Bancshares Corp (NASDAQ:IBOC) a buy here? Prominent investors are turning less bullish. The number of long hedge fund positions shrunk by 4 in recent months. Our calculations also showed that IBOC 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.
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 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.
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Donald Sussman of Paloma Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's review the key hedge fund action encompassing International Bancshares Corp (NASDAQ:IBOC).
Hedge fund activity in International Bancshares Corp (NASDAQ:IBOC)
Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IBOC over the last 18 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in International Bancshares Corp (NASDAQ:IBOC) was held by Polaris Capital Management, which reported holding $34.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $10.4 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Azora Capital. In terms of the portfolio weights assigned to each position Azora Capital allocated the biggest weight to International Bancshares Corp (NASDAQ:IBOC), around 3.35% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 2.07 percent of its 13F equity portfolio to IBOC.
Since International Bancshares Corp (NASDAQ:IBOC) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that slashed their entire stakes in the first quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $13.4 million in stock. Donald Sussman's fund, Paloma Partners, also dropped its stock, about $0.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds in the first quarter.
Let's also examine hedge fund activity in other stocks similar to International Bancshares Corp (NASDAQ:IBOC). These stocks are Baozun Inc (NASDAQ:BZUN), NetScout Systems, Inc. (NASDAQ:NTCT), WPX Energy Inc (NYSE:WPX), and PennyMac Financial Services Inc (NYSE:PFSI). This group of stocks' market valuations are similar to IBOC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BZUN,12,35603,-3 NTCT,12,82203,-8 WPX,29,411632,-15 PFSI,24,210160,8 Average,19.25,184900,-4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $97 million in IBOC's case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Baozun Inc (NASDAQ:BZUN) is the least popular one with only 12 bullish hedge fund positions. International Bancshares Corp (NASDAQ:IBOC) 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. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately IBOC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IBOC investors were disappointed as the stock returned 12.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.