Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Evans Bancorp Inc. (NYSE:EVBN)? The smart money sentiment can provide an answer to this question.
Is Evans Bancorp Inc. (NYSE:EVBN) a buy right now? Money managers are in an optimistic mood. The number of long hedge fund bets advanced by 1 in recent months. Our calculations also showed that EVBN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). EVBN was in 3 hedge funds' portfolios at the end of September. There were 2 hedge funds in our database with EVBN positions 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 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.
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/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. With all of this in mind we're going to view the recent hedge fund action regarding Evans Bancorp Inc. (NYSE:EVBN).
What have hedge funds been doing with Evans Bancorp Inc. (NYSE:EVBN)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EVBN over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Evans Bancorp Inc. (NYSE:EVBN) was held by Mendon Capital Advisors, which reported holding $3.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1.7 million position. The only other hedge fund that is bullish on the company was Millennium Management.
Consequently, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most outsized position in Evans Bancorp Inc. (NYSE:EVBN). Millennium Management had $0.8 million invested in the company at the end of the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Evans Bancorp Inc. (NYSE:EVBN). These stocks are CorMedix Inc. (NYSE:CRMD), Affimed NV (NASDAQ:AFMD), Exagen Inc. (NASDAQ:XGN), and China Distance Education Holdings Limited (NYSE:DL). This group of stocks' market valuations match EVBN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRMD,6,7358,3 AFMD,11,19629,1 XGN,6,13870,6 DL,1,1852,-1 Average,6,10677,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $6 million in EVBN's case. Affimed NV (NASDAQ:AFMD) is the most popular stock in this table. On the other hand China Distance Education Holdings Limited (NYSE:DL) is the least popular one with only 1 bullish hedge fund positions. Evans Bancorp Inc. (NYSE:EVBN) 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 EVBN, though not to the same extent, as the stock returned 8.8% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.