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Hedge Funds Watching Red River Bancshares, Inc. (RRBI) From Afar

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Red River Bancshares, Inc. (NASDAQ:RRBI).

Hedge fund interest in Red River Bancshares, Inc. (NASDAQ:RRBI) 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 RRBI to other stocks including Landec Corporation (NASDAQ:LNDC), Telaria, Inc. (NYSE:TLRA), and Noble Corporation plc (NYSE:NE) to get a better sense of its popularity.

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 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_322510" align="aligncenter" width="464"] New York Stock Exchange[/caption]

New York Stock Exchange

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 go over the latest hedge fund action surrounding Red River Bancshares, Inc. (NASDAQ:RRBI).

What does smart money think about Red River Bancshares, Inc. (NASDAQ:RRBI)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RRBI over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

RRBI_nov2019

More specifically, Castine Capital Management was the largest shareholder of Red River Bancshares, Inc. (NASDAQ:RRBI), with a stake worth $3.5 million reported as of the end of September. Trailing Castine Capital Management was Mendon Capital Advisors, which amassed a stake valued at $0.9 million. EJF Capital 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 Castine Capital Management allocated the biggest weight to Red River Bancshares, Inc. (NASDAQ:RRBI), around 0.96% of its portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to RRBI.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's now review hedge fund activity in other stocks similar to Red River Bancshares, Inc. (NASDAQ:RRBI). These stocks are Landec Corporation (NASDAQ:LNDC), Telaria, Inc. (NYSE:TLRA), Noble Corporation plc (NYSE:NE), and Protagonist Therapeutics, Inc. (NASDAQ:PTGX). This group of stocks' market valuations resemble RRBI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNDC,13,46350,2 TLRA,17,47266,3 NE,13,48356,-3 PTGX,15,105807,1 Average,14.5,61945,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $5 million in RRBI's case. Telaria, Inc. (NYSE:TLRA) is the most popular stock in this table. On the other hand Landec Corporation (NASDAQ:LNDC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Red River Bancshares, Inc. (NASDAQ:RRBI) is even less popular than LNDC. Hedge funds clearly dropped the ball on RRBI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on RRBI as the stock returned 11.3% during the fourth quarter (through 11/22) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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