Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards JMP Group LLC (NYSE:JMP).
Is JMP Group LLC (NYSE:JMP) a buy right now? The best stock pickers are becoming hopeful. The number of bullish hedge fund bets advanced by 1 in recent months. Our calculations also showed that JMP isn't among the 30 most popular stocks among hedge funds.
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_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the key hedge fund action surrounding JMP Group LLC (NYSE:JMP).
How are hedge funds trading JMP Group LLC (NYSE:JMP)?
At the end of the third quarter, 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. Below, you can check out the change in hedge fund sentiment towards JMP over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of JMP Group LLC (NYSE:JMP), with a stake worth $0.1 million reported as of the end of September. Trailing Renaissance Technologies was Arbiter Partners Capital Management, which amassed a stake valued at $0.1 million. Citadel Investment Group 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 Arbiter Partners Capital Management allocated the biggest weight to JMP Group LLC (NYSE:JMP), around 0.01% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0001 percent of its 13F equity portfolio to JMP.
Consequently, some big names were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in JMP Group LLC (NYSE:JMP). Citadel Investment Group had $0 million invested in the company at the end of the quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as JMP Group LLC (NYSE:JMP) but similarly valued. These stocks are Ecology & Environment, Inc. (NASDAQ:EEI), Nuverra Environmental Solutions Inc (NYSE:NES), NetSol Technologies Inc. (NASDAQ:NTWK), and Liquidia Technologies, Inc. (NASDAQ:LQDA). All of these stocks' market caps are closest to JMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EEI,4,16269,0 NES,5,30207,0 NTWK,5,8159,-1 LQDA,6,5608,0 Average,5,15061,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $0 million in JMP's case. Liquidia Technologies, Inc. (NASDAQ:LQDA) is the most popular stock in this table. On the other hand Ecology & Environment, Inc. (NASDAQ:EEI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks JMP Group LLC (NYSE:JMP) is even less popular than EEI. Hedge funds dodged a bullet by taking a bearish stance towards JMP. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately JMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); JMP investors were disappointed as the stock returned -2.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.