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Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
First Northwest Bancorp (NASDAQ:FNWB) has seen an increase in enthusiasm from smart money recently. FNWB was in 3 hedge funds' portfolios at the end of September. There were 2 hedge funds in our database with FNWB holdings at the end of the previous quarter. Our calculations also showed that FNWB 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.
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.
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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. Now let's go over the latest hedge fund action surrounding First Northwest Bancorp (NASDAQ:FNWB).
What does smart money think about First Northwest Bancorp (NASDAQ:FNWB)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FNWB over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Private Capital Management, managed by Gregg J. Powers, holds the most valuable position in First Northwest Bancorp (NASDAQ:FNWB). Private Capital Management has a $13.1 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $7.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to First Northwest Bancorp (NASDAQ:FNWB), around 2.28% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to FNWB.
Consequently, some big names have jumped into First Northwest Bancorp (NASDAQ:FNWB) headfirst. Winton Capital Management, managed by David Harding, initiated the biggest position in First Northwest Bancorp (NASDAQ:FNWB). Winton Capital Management had $0.3 million invested in the company at the end of the quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as First Northwest Bancorp (NASDAQ:FNWB) but similarly valued. These stocks are Nine Energy Service, Inc. (NYSE:NINE), Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI), Lifetime Brands Inc (NASDAQ:LCUT), and Energy Fuels Inc (NYSE:UUUU). This group of stocks' market valuations resemble FNWB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NINE,7,17303,1 RMBI,3,3736,3 LCUT,3,16247,0 UUUU,6,2448,-3 Average,4.75,9934,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $21 million in FNWB's case. Nine Energy Service, Inc. (NYSE:NINE) is the most popular stock in this table. On the other hand Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks First Northwest Bancorp (NASDAQ:FNWB) is even less popular than RMBI. Hedge funds dodged a bullet by taking a bearish stance towards FNWB. 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 FNWB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FNWB investors were disappointed as the stock returned 2% 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.