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Hedge Funds Have Never Been More Bullish On SB Financial Group, Inc. (SBFG)

Reymerlyn Martin

Does SB Financial Group, Inc. (NASDAQ:SBFG) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Hedge fund interest in SB Financial Group, Inc. (NASDAQ:SBFG) shares was flat at the end of last quarter. 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 OncoCyte Corporation (NYSE:OCX), scPharmaceuticals Inc. (NASDAQ:SCPH), and LRAD Corp (NASDAQ:LRAD) to gather more data points. Our calculations also showed that SBFG isn't among the 30 most popular stocks among hedge funds.

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_26073" align="aligncenter" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the new hedge fund action regarding SB Financial Group, Inc. (NASDAQ:SBFG).

How have hedgies been trading SB Financial Group, Inc. (NASDAQ:SBFG)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 3 hedge funds held shares or bullish call options in SBFG a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SBFG_nov2019

More specifically, EJF Capital was the largest shareholder of SB Financial Group, Inc. (NASDAQ:SBFG), with a stake worth $10.5 million reported as of the end of September. Trailing EJF Capital was Tontine Asset Management, which amassed a stake valued at $0.6 million. Renaissance Technologies was 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 EJF Capital allocated the biggest weight to SB Financial Group, Inc. (NASDAQ:SBFG), around 1.43% of its portfolio. Tontine Asset Management is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to SBFG.

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 third 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 check out hedge fund activity in other stocks similar to SB Financial Group, Inc. (NASDAQ:SBFG). We will take a look at OncoCyte Corporation (NYSE:OCX), scPharmaceuticals Inc. (NASDAQ:SCPH), LRAD Corp (NASDAQ:LRAD), and Leaf Group Ltd. (NYSE:LEAF). This group of stocks' market valuations are similar to SBFG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCX,4,23596,-2 SCPH,5,41043,0 LRAD,6,11989,4 LEAF,8,25548,0 Average,5.75,25544,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $11 million in SBFG's case. Leaf Group Ltd. (NYSE:LEAF) is the most popular stock in this table. On the other hand OncoCyte Corporation (NYSE:OCX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks SB Financial Group, Inc. (NASDAQ:SBFG) is even less popular than OCX. Hedge funds clearly dropped the ball on SBFG as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on SBFG as the stock returned 10.2% during the fourth quarter (through 11/22) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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