Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Sierra Bancorp (NASDAQ:BSRR) was in 7 hedge funds' portfolios at the end of the second quarter of 2019. BSRR has experienced an increase in enthusiasm from smart money lately. There were 6 hedge funds in our database with BSRR positions at the end of the previous quarter. Our calculations also showed that BSRR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We're going to go over the recent hedge fund action surrounding Sierra Bancorp (NASDAQ:BSRR).
How have hedgies been trading Sierra Bancorp (NASDAQ:BSRR)?
Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BSRR over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Sierra Bancorp (NASDAQ:BSRR), with a stake worth $10.4 million reported as of the end of March. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $3.4 million. Millennium Management, Two Sigma Advisors, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Sierra Bancorp (NASDAQ:BSRR). Arrowstreet Capital had $0.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.3 million investment in the stock during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Sierra Bancorp (NASDAQ:BSRR). These stocks are Trilogy Metals Inc. (NYSE:TMQ), Gritstone Oncology, Inc. (NASDAQ:GRTS), Bar Harbor Bankshares (NYSE:BHB), and IES Holdings, Inc. (NASDAQ:IESC). All of these stocks' market caps are similar to BSRR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMQ,14,159645,1 GRTS,8,87517,0 BHB,3,16575,0 IESC,5,249922,0 Average,7.5,128415,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $17 million in BSRR's case. Trilogy Metals Inc. (NYSE:TMQ) is the most popular stock in this table. On the other hand Bar Harbor Bankshares (NYSE:BHB) is the least popular one with only 3 bullish hedge fund positions. Sierra Bancorp (NASDAQ:BSRR) 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. 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. Unfortunately BSRR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BSRR investors were disappointed as the stock returned -1.3% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.