The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of FSB Bancorp, Inc. (NASDAQ:FSBC) and find out how it is affected by hedge funds' moves.
Hedge fund interest in FSB Bancorp, Inc. (NASDAQ:FSBC) 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 Bellerophon Therapeutics, Inc. (NASDAQ:BLPH), Data I/O Corporation (NASDAQ:DAIO), and Jewett-Cameron Trading Co Ltd. (NASDAQ:JCTCF) to gather more data points. Our calculations also showed that FSBC 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
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 analyze the fresh hedge fund action regarding FSB Bancorp, Inc. (NASDAQ:FSBC).
What does smart money think about FSB Bancorp, Inc. (NASDAQ:FSBC)?
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in FSBC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Michael Price's MFP Investors has the number one position in FSB Bancorp, Inc. (NASDAQ:FSBC), worth close to $3.2 million, accounting for 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Seidman Investment Partnership, managed by Lawrence Seidman, which holds a $2.1 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Anton Schutz's Mendon Capital Advisors, David P. Cohen's Minerva Advisors and . In terms of the portfolio weights assigned to each position Seidman Investment Partnership allocated the biggest weight to FSB Bancorp, Inc. (NASDAQ:FSBC), around 1.88% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, setting aside 0.44 percent of its 13F equity portfolio to FSBC.
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 now take a look at hedge fund activity in other stocks similar to FSB Bancorp, Inc. (NASDAQ:FSBC). We will take a look at Bellerophon Therapeutics, Inc. (NASDAQ:BLPH), Data I/O Corporation (NASDAQ:DAIO), Jewett-Cameron Trading Co Ltd. (NASDAQ:JCTCF), and Entree Gold Inc (NYSE:EGI). This group of stocks' market caps resemble FSBC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLPH,5,5236,0 DAIO,1,2566,-1 JCTCF,1,1536,0 EGI,2,1557,0 Average,2.25,2724,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $6 million in FSBC's case. Bellerophon Therapeutics, Inc. (NASDAQ:BLPH) is the most popular stock in this table. On the other hand Data I/O Corporation (NASDAQ:DAIO) is the least popular one with only 1 bullish hedge fund positions. FSB Bancorp, Inc. (NASDAQ:FSBC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FSBC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FSBC were disappointed as the stock returned -1.8% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.