We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Bank of Marin Bancorp (NASDAQ:BMRC).
Hedge fund interest in Bank of Marin Bancorp (NASDAQ:BMRC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare BMRC to other stocks including Viomi Technology Co., Ltd (NASDAQ:VIOT), McEwen Mining Inc (NYSE:MUX), and International Seaways, Inc. (NYSE:INSW) 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.
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_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/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 let's check out the key hedge fund action encompassing Bank of Marin Bancorp (NASDAQ:BMRC).
What does smart money think about Bank of Marin Bancorp (NASDAQ:BMRC)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in BMRC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Bank of Marin Bancorp (NASDAQ:BMRC), which was worth $10.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $5.7 million worth of shares. Winton Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Winton Capital Management allocated the biggest weight to Bank of Marin Bancorp (NASDAQ:BMRC), around 0.03% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to BMRC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to Bank of Marin Bancorp (NASDAQ:BMRC). These stocks are Viomi Technology Co., Ltd (NASDAQ:VIOT), McEwen Mining Inc (NYSE:MUX), International Seaways, Inc. (NYSE:INSW), and Crawford & Company (NYSE:CRD). This group of stocks' market valuations resemble BMRC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIOT,3,24469,0 MUX,4,5621,0 INSW,21,158072,6 CRD,14,36590,3 Average,10.5,56188,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $20 million in BMRC's case. International Seaways, Inc. (NYSE:INSW) is the most popular stock in this table. On the other hand Viomi Technology Co., Ltd (NASDAQ:VIOT) is the least popular one with only 3 bullish hedge fund positions. Bank of Marin Bancorp (NASDAQ:BMRC) 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 BMRC, though not to the same extent, as the stock returned 9.3% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.