Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
BayCom Corp (NASDAQ:BCML) was in 5 hedge funds' portfolios at the end of September. BCML investors should pay attention to an increase in hedge fund interest of late. There were 4 hedge funds in our database with BCML holdings at the end of the previous quarter. Our calculations also showed that BCML 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_26255" align="aligncenter" width="450"] Louis Navellier of Navellier & Associates[/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 take a look at the fresh hedge fund action surrounding BayCom Corp (NASDAQ:BCML).
What does smart money think about BayCom Corp (NASDAQ:BCML)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BCML over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, EJF Capital was the largest shareholder of BayCom Corp (NASDAQ:BCML), with a stake worth $14.7 million reported as of the end of September. Trailing EJF Capital was Mendon Capital Advisors, which amassed a stake valued at $6 million. Royce & Associates, Millennium Management, and Navellier & Associates 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 EJF Capital allocated the biggest weight to BayCom Corp (NASDAQ:BCML), around 2% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, setting aside 1.02 percent of its 13F equity portfolio to BCML.
Now, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the biggest position in BayCom Corp (NASDAQ:BCML). Millennium Management had $1.4 million invested in the company at the end of the quarter.
Let's also examine hedge fund activity in other stocks similar to BayCom Corp (NASDAQ:BCML). We will take a look at SEACOR Marine Holdings Inc. (NYSE:SMHI), Rayonier Advanced Materials Inc (NYSE:RYAM), Northwest Pipe Company (NASDAQ:NWPX), and Twelve Seas Investment Company (NASDAQ:BROG). This group of stocks' market caps are similar to BCML's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMHI,6,27404,-1 RYAM,11,30864,-12 NWPX,11,37764,1 BROG,8,17206,-3 Average,9,28310,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $26 million in BCML's case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand SEACOR Marine Holdings Inc. (NYSE:SMHI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks BayCom Corp (NASDAQ:BCML) is even less popular than SMHI. Hedge funds dodged a bullet by taking a bearish stance towards BCML. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BCML wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BCML investors were disappointed as the stock returned -3.3% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.