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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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is BancFirst Corporation (NASDAQ:BANF), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is BancFirst Corporation (NASDAQ:BANF) going to take off soon? The best stock pickers are turning less bullish. The number of long hedge fund positions were trimmed by 3 recently. Our calculations also showed that BANF 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). BANF was in 6 hedge funds' portfolios at the end of December. There were 9 hedge funds in our database with BANF positions at the end of the previous quarter.
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.
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Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to view the recent hedge fund action encompassing BancFirst Corporation (NASDAQ:BANF).
How are hedge funds trading BancFirst Corporation (NASDAQ:BANF)?
At Q4's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the third quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in BANF a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Cardinal Capital held the most valuable stake in BancFirst Corporation (NASDAQ:BANF), which was worth $20.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.1 million worth of shares. Millennium Management, AQR Capital Management, and Two Sigma Advisors 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 Cardinal Capital allocated the biggest weight to BancFirst Corporation (NASDAQ:BANF), around 0.62% 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 BANF.
Because BancFirst Corporation (NASDAQ:BANF) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of fund managers that elected to cut their full holdings heading into Q4. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at about $2.4 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $0.3 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to BancFirst Corporation (NASDAQ:BANF). These stocks are Patterson-UTI Energy, Inc. (NASDAQ:PTEN), Prestige Brands Holdings, Inc. (NYSE:PBH), Myriad Genetics, Inc. (NASDAQ:MYGN), and Ambarella Inc (NASDAQ:AMBA). This group of stocks' market valuations match BANF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTEN,29,296456,2 PBH,14,100030,-4 MYGN,15,237000,2 AMBA,26,206071,-4 Average,21,209889,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $45 million in BANF's case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand Prestige Brands Holdings, Inc. (NYSE:PBH) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks BancFirst Corporation (NASDAQ:BANF) is even less popular than PBH. Hedge funds dodged a bullet by taking a bearish stance towards BANF. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately BANF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BANF investors were disappointed as the stock returned -47.1% 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 so far in 2020.
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.