How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding East West Bancorp, Inc. (NASDAQ:EWBC) and determine whether hedge funds had an edge regarding this stock.
Is East West Bancorp, Inc. (NASDAQ:EWBC) a bargain? Investors who are in the know were in a bearish mood. The number of bullish hedge fund positions were trimmed by 4 recently. Our calculations also showed that EWBC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). EWBC was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with EWBC positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are plenty of metrics stock traders employ to evaluate their holdings. A couple of the most useful metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite fund managers can outpace the S&P 500 by a superb amount (see the details here).
[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we're going to analyze the new hedge fund action regarding East West Bancorp, Inc. (NASDAQ:EWBC).
How have hedgies been trading East West Bancorp, Inc. (NASDAQ:EWBC)?
Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EWBC over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in East West Bancorp, Inc. (NASDAQ:EWBC), which was worth $47.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $36.9 million worth of shares. Two Sigma Advisors, D E Shaw, and AQR Capital Management 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 Neo Ivy Capital allocated the biggest weight to East West Bancorp, Inc. (NASDAQ:EWBC), around 0.47% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, earmarking 0.36 percent of its 13F equity portfolio to EWBC.
Since East West Bancorp, Inc. (NASDAQ:EWBC) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few funds who were dropping their entire stakes in the first quarter. At the top of the heap, Clint Carlson's Carlson Capital sold off the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $56.1 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $24.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds in the first quarter.
Let's also examine hedge fund activity in other stocks similar to East West Bancorp, Inc. (NASDAQ:EWBC). We will take a look at Silicon Laboratories (NASDAQ:SLAB), Deckers Outdoor Corp (NASDAQ:DECK), Vir Biotechnology, Inc. (NASDAQ:VIR), and Jabil Inc. (NYSE:JBL). This group of stocks' market valuations match EWBC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLAB,20,58924,-6 DECK,31,554069,-12 VIR,4,17427,2 JBL,20,252649,-14 Average,18.75,220767,-7.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $180 million in EWBC's case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand Vir Biotechnology, Inc. (NASDAQ:VIR) is the least popular one with only 4 bullish hedge fund positions. East West Bancorp, Inc. (NASDAQ:EWBC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on EWBC as the stock returned 41.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.