Is TowneBank (NASDAQ:TOWN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
TowneBank (NASDAQ:TOWN) has seen a decrease in support from the world's most elite money managers lately. TOWN was in 6 hedge funds' portfolios at the end of September. There were 7 hedge funds in our database with TOWN holdings at the end of the previous quarter. Our calculations also showed that TOWN 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.
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 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 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.
[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium 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. With all of this in mind we're going to review the fresh hedge fund action regarding TowneBank (NASDAQ:TOWN).
How have hedgies been trading TowneBank (NASDAQ:TOWN)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TOWN over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of TowneBank (NASDAQ:TOWN), with a stake worth $32.7 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $11.5 million. PEAK6 Capital Management, Driehaus Capital, and Citadel Investment Group 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 Renaissance Technologies allocated the biggest weight to TowneBank (NASDAQ:TOWN), around 0.03% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to TOWN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was PEAK6 Capital Management).
Let's go over hedge fund activity in other stocks similar to TowneBank (NASDAQ:TOWN). We will take a look at Worthington Industries, Inc. (NYSE:WOR), CommVault Systems, Inc. (NASDAQ:CVLT), Tellurian Inc. (NASDAQ:TELL), and Cambrex Corporation (NYSE:CBM). This group of stocks' market valuations are similar to TOWN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WOR,22,58920,9 CVLT,24,296800,5 TELL,14,52629,5 CBM,17,153556,5 Average,19.25,140476,6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $46 million in TOWN's case. CommVault Systems, Inc. (NASDAQ:CVLT) is the most popular stock in this table. On the other hand Tellurian Inc. (NASDAQ:TELL) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks TowneBank (NASDAQ:TOWN) is even less popular than TELL. Hedge funds dodged a bullet by taking a bearish stance towards TOWN. 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 TOWN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TOWN investors were disappointed as the stock returned 1.2% 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.