Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards a tiny stock: Fauquier Bankshares, Inc. (NASDAQ:FBSS).
Hedge fund interest in Fauquier Bankshares, Inc. (NASDAQ:FBSS) shares was flat at the end of September. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Vuzix Corporation (NASDAQ:VUZI), Libbey Inc. (NYSE:LBY), and AgeX Therapeutics, Inc. (NYSE:AGE) to gather more data points. Our calculations also showed that FBSS isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the new hedge fund action surrounding Fauquier Bankshares, Inc. (NASDAQ:FBSS).
What does smart money think about Fauquier Bankshares, Inc. (NASDAQ:FBSS)?
At the end of the third quarter, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in FBSS over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Fauquier Bankshares, Inc. (NASDAQ:FBSS), which was worth $5.7 million at the end of the third quarter. On the second spot was Castine Capital Management which amassed $3.1 million worth of shares.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the second quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Fauquier Bankshares, Inc. (NASDAQ:FBSS) but similarly valued. These stocks are Vuzix Corporation (NASDAQ:VUZI), Libbey Inc. (NYSE:LBY), AgeX Therapeutics, Inc. (NYSE:AGE), and Highpower International Inc (NASDAQ:HPJ). All of these stocks' market caps are closest to FBSS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VUZI,3,360,-2 LBY,10,12800,2 AGE,1,5874,0 HPJ,1,5594,0 Average,3.75,6157,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $9 million in FBSS's case. Libbey Inc. (NYSE:LBY) is the most popular stock in this table. On the other hand AgeX Therapeutics, Inc. (NYSE:AGE) is the least popular one with only 1 bullish hedge fund positions. Fauquier Bankshares, Inc. (NASDAQ:FBSS) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately FBSS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FBSS investors were disappointed as the stock returned 2.5% during the fourth quarter (through 11/22) 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.