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 Eagle Bancorp Montana Inc (NASDAQ:EBMT) and find out how it is affected by hedge funds' moves.
Eagle Bancorp Montana Inc (NASDAQ:EBMT) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. 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 Mammoth Energy Services, Inc. (NASDAQ:TUSK), Garrison Capital Inc (NASDAQ:GARS), and BioXcel Therapeutics, Inc. (NASDAQ:BTAI) to gather more data points. Our calculations also showed that EBMT 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_26073" align="aligncenter" width="450"] Jim Simons of Renaissance Technologies[/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 we're going to view the new hedge fund action regarding Eagle Bancorp Montana Inc (NASDAQ:EBMT).
How are hedge funds trading Eagle Bancorp Montana Inc (NASDAQ:EBMT)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EBMT over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Emanuel J. Friedman's EJF Capital has the most valuable position in Eagle Bancorp Montana Inc (NASDAQ:EBMT), worth close to $7.4 million, corresponding to 1% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $1.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Eagle Bancorp Montana Inc (NASDAQ:EBMT), around 1.01% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, dishing out 0.24 percent of its 13F equity portfolio to EBMT.
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 review hedge fund activity in other stocks - not necessarily in the same industry as Eagle Bancorp Montana Inc (NASDAQ:EBMT) but similarly valued. These stocks are Mammoth Energy Services, Inc. (NASDAQ:TUSK), Garrison Capital Inc (NASDAQ:GARS), BioXcel Therapeutics, Inc. (NASDAQ:BTAI), and HMN Financial, Inc. (NASDAQ:HMNF). This group of stocks' market valuations resemble EBMT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TUSK,9,56496,0 GARS,2,423,0 BTAI,3,2923,2 HMNF,3,15418,0 Average,4.25,18815,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $9 million in EBMT's case. Mammoth Energy Services, Inc. (NASDAQ:TUSK) is the most popular stock in this table. On the other hand Garrison Capital Inc (NASDAQ:GARS) is the least popular one with only 2 bullish hedge fund positions. Eagle Bancorp Montana Inc (NASDAQ:EBMT) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on EBMT as the stock returned 22.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.