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 First Business Financial Services Inc (NASDAQ:FBIZ).
Is First Business Financial Services Inc (NASDAQ:FBIZ) the right investment to pursue these days? Hedge funds are taking an optimistic view. The number of long hedge fund positions moved up by 1 recently. Our calculations also showed that FBIZ 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.
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 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.
[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 we're going to check out the recent hedge fund action surrounding First Business Financial Services Inc (NASDAQ:FBIZ).
What does smart money think about First Business Financial Services Inc (NASDAQ:FBIZ)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in FBIZ a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in First Business Financial Services Inc (NASDAQ:FBIZ) was held by Renaissance Technologies, which reported holding $6.1 million worth of stock at the end of September. It was followed by Winton Capital Management with a $0.5 million position. The only other hedge fund that is bullish on the company was Millennium Management.
As industrywide interest jumped, key money managers have jumped into First Business Financial Services Inc (NASDAQ:FBIZ) headfirst. Winton Capital Management, managed by David Harding, initiated the most outsized position in First Business Financial Services Inc (NASDAQ:FBIZ). Winton Capital Management had $0.5 million invested in the company at the end of the quarter.
Let's now take a look at hedge fund activity in other stocks similar to First Business Financial Services Inc (NASDAQ:FBIZ). These stocks are Americas Gold and Silver Corporation (NYSE:USAS), Galectin Therapeutics Inc. (NASDAQ:GALT), Entegra Financial Corp (NASDAQ:ENFC), and Sutro Biopharma, Inc. (NASDAQ:STRO). All of these stocks' market caps resemble FBIZ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USAS,3,1836,1 GALT,5,332,1 ENFC,6,18780,1 STRO,10,38528,0 Average,6,14869,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $7 million in FBIZ's case. Sutro Biopharma, Inc. (NASDAQ:STRO) is the most popular stock in this table. On the other hand Americas Gold and Silver Corporation (NYSE:USAS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks First Business Financial Services Inc (NASDAQ:FBIZ) is even less popular than USAS. Hedge funds dodged a bullet by taking a bearish stance towards FBIZ. 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 FBIZ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FBIZ investors were disappointed as the stock returned 4.4% 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.