We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether CenterState Bank Corporation (NASDAQ:CSFL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
CenterState Bank Corporation (NASDAQ:CSFL) has experienced an increase in enthusiasm from smart money recently. Our calculations also showed that CSFL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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. 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_745225" align="aligncenter" width="399"] Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a peek at the fresh hedge fund action surrounding CenterState Bank Corporation (NASDAQ:CSFL).
What does smart money think about CenterState Bank Corporation (NASDAQ:CSFL)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in CSFL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in CenterState Bank Corporation (NASDAQ:CSFL), worth close to $27.3 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Forest Hill Capital, managed by Mark Lee, which holds a $14 million position; 4.6% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism consist of Chuck Royce's Royce & Associates, Ian Simm's Impax Asset Management and Paul Magidson, Jonathan Cohen. And Ostrom Enders's Castine Capital Management. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to CenterState Bank Corporation (NASDAQ:CSFL), around 4.63% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, designating 1.11 percent of its 13F equity portfolio to CSFL.
Consequently, some big names have jumped into CenterState Bank Corporation (NASDAQ:CSFL) headfirst. Impax Asset Management, managed by Ian Simm, initiated the most valuable position in CenterState Bank Corporation (NASDAQ:CSFL). Impax Asset Management had $7.3 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $1.7 million investment in the stock during the quarter. The other funds with brand new CSFL positions are Israel Englander's Millennium Management, Dmitry Balyasny's Balyasny Asset Management, and Qing Li's Sciencast Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as CenterState Bank Corporation (NASDAQ:CSFL) but similarly valued. We will take a look at Amkor Technology, Inc. (NASDAQ:AMKR), Legg Mason, Inc. (NYSE:LM), Anixter International Inc. (NYSE:AXE), and Old National Bancorp (NASDAQ:ONB). All of these stocks' market caps are similar to CSFL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMKR,29,198950,2 LM,37,434299,9 AXE,43,616473,23 ONB,14,37866,3 Average,30.75,321897,9.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $78 million in CSFL's case. Anixter International Inc. (NYSE:AXE) is the most popular stock in this table. On the other hand Old National Bancorp (NASDAQ:ONB) is the least popular one with only 14 bullish hedge fund positions. CenterState Bank Corporation (NASDAQ:CSFL) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CSFL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CSFL investors were disappointed as the stock returned -31.6% during the same time period 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.