It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Eagle Bancorp, Inc. (NASDAQ:EGBN).
Eagle Bancorp, Inc. (NASDAQ:EGBN) was in 19 hedge funds' portfolios at the end of September. EGBN investors should be aware of an increase in hedge fund interest in recent months. There were 11 hedge funds in our database with EGBN holdings at the end of the previous quarter. Our calculations also showed that egbn isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the key hedge fund action regarding Eagle Bancorp, Inc. (NASDAQ:EGBN).
What does the smart money think about Eagle Bancorp, Inc. (NASDAQ:EGBN)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 73% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in EGBN heading into this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of Eagle Bancorp, Inc. (NASDAQ:EGBN), with a stake worth $29.6 million reported as of the end of September. Trailing Millennium Management was Basswood Capital, which amassed a stake valued at $12.1 million. AQR Capital Management, Citadel Investment Group, and Castine Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Castine Capital Management, managed by Paul Magidson, Jonathan Cohen. And Ostrom Enders, assembled the most valuable position in Eagle Bancorp, Inc. (NASDAQ:EGBN). Castine Capital Management had $4.1 million invested in the company at the end of the quarter. Mario Gabelli's GAMCO Investors also made a $3.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Matthew Tewksbury's Stevens Capital Management, and D. E. Shaw's D E Shaw.
Let's go over hedge fund activity in other stocks similar to Eagle Bancorp, Inc. (NASDAQ:EGBN). We will take a look at Puma Biotechnology Inc (NASDAQ:PBYI), SemGroup Corp (NYSE:SEMG), Noble Corporation plc (NYSE:NE), and Phibro Animal Health Corp (NASDAQ:PAHC). This group of stocks' market values match EGBN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PBYI,22,622114,0 SEMG,7,27992,-5 NE,21,260440,-1 PAHC,21,76904,4 Average,17.75,246863,-0.5 [/table]
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As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $247 million. That figure was $78 million in EGBN's case. Puma Biotechnology Inc (NASDAQ:PBYI) is the most popular stock in this table. On the other hand SemGroup Corp (NYSE:SEMG) is the least popular one with only 7 bullish hedge fund positions. Eagle Bancorp, Inc. (NASDAQ:EGBN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard PBYI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.