Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Banc of California, Inc. (NYSE:BANC) and see how the stock is affected by the recent hedge fund activity.
Banc of California, Inc. (NYSE:BANC) was in 15 hedge funds' portfolios at the end of March. BANC has seen a decrease in support from the world's most elite money managers recently. There were 17 hedge funds in our database with BANC positions at the end of the previous quarter. Our calculations also showed that BANC isn't among the 30 most popular stocks among hedge funds.
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' 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 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 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.
Let's take a look at the recent hedge fund action encompassing Banc of California, Inc. (NYSE:BANC).
Hedge fund activity in Banc of California, Inc. (NYSE:BANC)
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in BANC over the last 15 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, EJF Capital was the largest shareholder of Banc of California, Inc. (NYSE:BANC), with a stake worth $27.7 million reported as of the end of March. Trailing EJF Capital was MFP Investors, which amassed a stake valued at $18.4 million. Second Curve Capital, Forest Hill Capital, and Mendon Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Banc of California, Inc. (NYSE:BANC) has witnessed declining sentiment from hedge fund managers, it's safe to say that there was a specific group of funds that decided to sell off their full holdings by the end of the third quarter. Interestingly, Jeffrey Hinkle's Shoals Capital Management said goodbye to the biggest position of the "upper crust" of funds watched by Insider Monkey, worth close to $7.7 million in stock, and Chuck Royce's Royce & Associates was right behind this move, as the fund dumped about $2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Banc of California, Inc. (NYSE:BANC) but similarly valued. These stocks are Weatherford International plc (NYSE:WFT), Ballard Power Systems Inc. (NASDAQ:BLDP), ConnectOne Bancorp Inc (NASDAQ:CNOB), and Lindblad Expeditions Holdings Inc (NASDAQ:LIND). All of these stocks' market caps are closest to BANC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WFT,15,38444,-7 BLDP,3,367,1 CNOB,10,41185,-2 LIND,20,156753,6 Average,12,59187,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $92 million in BANC's case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 3 bullish hedge fund positions. Banc of California, Inc. (NYSE:BANC) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately BANC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BANC were disappointed as the stock returned 1.7% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.