Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' recent losses in Facebook. Let’s take a closer look at what the funds we track think about SI Financial Group, Inc. (NASDAQ:SIFI) in this article.
Is SI Financial Group, Inc. (NASDAQ:SIFI) ready to rally soon? Hedge funds are reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 1 recently. Our calculations also showed that SIFI isn't among the 30 most popular stocks among hedge funds. SIFI was in 6 hedge funds' portfolios at the end of the third quarter of 2018. There were 7 hedge funds in our database with SIFI positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's go over the new hedge fund action encompassing SI Financial Group, Inc. (NASDAQ:SIFI).
What have hedge funds been doing with SI Financial Group, Inc. (NASDAQ:SIFI)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2018. By comparison, 7 hedge funds held shares or bullish call options in SIFI heading into this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.\
The largest stake in SI Financial Group, Inc. (NASDAQ:SIFI) was held by Renaissance Technologies, which reported holding $6.5 million worth of stock at the end of September. It was followed by Seidman Investment Partnership with a $5 million position. Other investors bullish on the company included EJF Capital, MFP Investors, and Prospector Partners.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Mendon Capital Advisors. 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 700+ hedge funds tracked by Insider Monkey identified SIFI as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as SI Financial Group, Inc. (NASDAQ:SIFI) but similarly valued. These stocks are USA Truck, Inc. (NASDAQ:USAK), ContraFect Corp (NASDAQ:CFRX), Franklin Universal Trust (NYSE:FT), and Mediwound Ltd (NASDAQ:MDWD). This group of stocks' market values are closest to SIFI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USAK,11,19629,-4 CFRX,10,42304,0 FT,2,324,0 MDWD,3,2483,-2 Average,6.5,16185,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $18 million in SIFI's case. USA Truck, Inc. (NASDAQ:USAK) is the most popular stock in this table. On the other hand Franklin Universal Trust (NYSE:FT) is the least popular one with only 2 bullish hedge fund positions. SI Financial Group, Inc. (NASDAQ:SIFI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard USAK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.