Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Hedge fund interest in TowneBank (NASDAQ:TOWN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TOWN to other stocks including Builders FirstSource, Inc. (NASDAQ:BLDR), ProAssurance Corporation (NYSE:PRA), and Meritor Inc (NYSE:MTOR) to get a better sense of its popularity. Our calculations also showed that TOWN 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.
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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the recent hedge fund action regarding TowneBank (NASDAQ:TOWN).
How have hedgies been trading TowneBank (NASDAQ:TOWN)?
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 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TOWN over the last 16 quarters. So, let's check out 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 TowneBank (NASDAQ:TOWN), with a stake worth $30.4 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $4.8 million. Driehaus Capital, Citadel Investment Group, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Because TowneBank (NASDAQ:TOWN) has witnessed falling interest from the smart money, it's safe to say that there is a sect of hedge funds that decided to sell off their positions entirely heading into Q3. Interestingly, Roger Ibbotson's Zebra Capital Management dropped the largest investment of the 750 funds monitored by Insider Monkey, comprising about $0.7 million in stock. D. E. Shaw's fund, D E Shaw, also sold off its stock, about $0.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to TowneBank (NASDAQ:TOWN). We will take a look at Builders FirstSource, Inc. (NASDAQ:BLDR), ProAssurance Corporation (NYSE:PRA), Meritor Inc (NYSE:MTOR), and Denali Therapeutics Inc. (NASDAQ:DNLI). This group of stocks' market valuations resemble TOWN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLDR,35,418210,-2 PRA,15,183901,1 MTOR,23,329539,5 DNLI,9,20646,-1 Average,20.5,238074,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $37 million in TOWN's case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks TowneBank (NASDAQ:TOWN) is even less popular than DNLI. 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. A small number of hedge funds were also right about betting on TOWN, though not to the same extent, as the stock returned 2.6% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
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