Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Investors Bancorp, Inc. (NASDAQ:ISBC) a healthy stock for your portfolio? The best stock pickers are in a bearish mood. The number of long hedge fund bets were trimmed by 1 lately. Our calculations also showed that ISBC isn't among the 30 most popular stocks among hedge funds (view the video below). ISBC was in 23 hedge funds' portfolios at the end of June. There were 24 hedge funds in our database with ISBC holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the recent hedge fund action surrounding Investors Bancorp, Inc. (NASDAQ:ISBC).
How have hedgies been trading Investors Bancorp, Inc. (NASDAQ:ISBC)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in ISBC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Blue Harbour Group held the most valuable stake in Investors Bancorp, Inc. (NASDAQ:ISBC), which was worth $304.6 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $85.9 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Balyasny Asset Management were also bullish on Investors Bancorp, Inc. (NASDAQ:ISBC), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Investors Bancorp, Inc. (NASDAQ:ISBC) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of money managers that elected to cut their full holdings in the second quarter. Interestingly, Matt Sirovich and Jeremy Mindich's Scopia Capital dropped the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $85.6 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund said goodbye to about $0.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Investors Bancorp, Inc. (NASDAQ:ISBC). We will take a look at J&J Snack Foods Corp. (NASDAQ:JJSF), B2Gold Corp (NYSEMKT:BTG), Delek US Holdings, Inc. (NYSE:DK), and The Ensign Group, Inc. (NASDAQ:ENSG). All of these stocks' market caps are closest to ISBC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JJSF,13,81274,-1 BTG,17,145412,1 DK,18,117625,-10 ENSG,14,106736,-3 Average,15.5,112762,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $569 million in ISBC's case. Delek US Holdings, Inc. (NYSE:DK) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Investors Bancorp, Inc. (NASDAQ:ISBC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ISBC, though not to the same extent, as the stock returned 2.9% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.