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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards BanColombia S.A. (NYSE:CIB).
Is BanColombia S.A. (NYSE:CIB) a buy here? Money managers were becoming less confident. The number of bullish hedge fund bets were trimmed by 1 lately. BanColombia S.A. (NYSE:CIB) was in 3 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 14. Our calculations also showed that CIB isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 4 hedge funds in our database with CIB holdings at the end of December.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bernard Horn of Polaris Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to analyze the fresh hedge fund action surrounding BanColombia S.A. (NYSE:CIB).
Do Hedge Funds Think CIB Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in CIB over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Polaris Capital Management was the largest shareholder of BanColombia S.A. (NYSE:CIB), with a stake worth $67.4 million reported as of the end of March. Trailing Polaris Capital Management was Citadel Investment Group, which amassed a stake valued at $1.1 million. Two Sigma Advisors 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 Polaris Capital Management allocated the biggest weight to BanColombia S.A. (NYSE:CIB), around 2.21% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, dishing out 0.0012 percent of its 13F equity portfolio to CIB.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weld 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 none of the 750+ hedge funds tracked by Insider Monkey identified CIB as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks similar to BanColombia S.A. (NYSE:CIB). We will take a look at Bank of Hawaii Corporation (NYSE:BOH), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Spirit Airlines Incorporated (NYSE:SAVE), Eastern Bankshares, Inc. (NASDAQ:EBC), SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), WNS (Holdings) Limited (NYSE:WNS), and Veracyte Inc (NASDAQ:VCYT). This group of stocks' market caps match CIB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BOH,15,45660,-2 RETA,24,266316,0 SAVE,24,250551,1 EBC,14,105049,-2 SWTX,22,1238860,0 WNS,21,261004,-2 VCYT,19,636621,4 Average,19.9,400580,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $401 million. That figure was $69 million in CIB's case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand Eastern Bankshares, Inc. (NASDAQ:EBC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks BanColombia S.A. (NYSE:CIB) is even less popular than EBC. Our overall hedge fund sentiment score for CIB is 10.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards CIB. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately CIB wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); CIB investors were disappointed as the stock returned -2.1% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.