World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is Bank of Marin Bancorp (NASDAQ:BMRC) the right pick for your portfolio? Investors who are in the know are selling. The number of long hedge fund positions were trimmed by 2 lately. Our calculations also showed that BMRC isn't among the 30 most popular stocks among hedge funds (see the video below). BMRC was in 5 hedge funds' portfolios at the end of the second quarter of 2019. There were 7 hedge funds in our database with BMRC positions at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's analyze the new hedge fund action encompassing Bank of Marin Bancorp (NASDAQ:BMRC).
Hedge fund activity in Bank of Marin Bancorp (NASDAQ:BMRC)
Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in BMRC a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies holds the largest position in Bank of Marin Bancorp (NASDAQ:BMRC). Renaissance Technologies has a $10.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $6.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions comprise Cliff Asness's AQR Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and David Harding's Winton Capital Management.
Judging by the fact that Bank of Marin Bancorp (NASDAQ:BMRC) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of funds that slashed their entire stakes last quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest position of all the hedgies followed by Insider Monkey, worth an estimated $0.1 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also cut its stock, about $0 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Bank of Marin Bancorp (NASDAQ:BMRC) but similarly valued. These stocks are One Liberty Properties, Inc. (NYSE:OLP), Gran Tierra Energy Inc. (NYSEAMEX:GTE), Energy Recovery, Inc. (NASDAQ:ERII), and TransMedics Group, Inc. (NASDAQ:TMDX). All of these stocks' market caps are closest to BMRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OLP,4,29008,0 GTE,13,217180,-3 ERII,10,50526,1 TMDX,7,108449,7 Average,8.5,101291,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $18 million in BMRC's case. Gran Tierra Energy Inc. (NYSEAMEX:GTE) is the most popular stock in this table. On the other hand One Liberty Properties, Inc. (NYSE:OLP) is the least popular one with only 4 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BMRC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BMRC investors were disappointed as the stock returned 1.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.