We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 Heritage Financial Corporation (NASDAQ:HFWA).
Heritage Financial Corporation (NASDAQ:HFWA) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Boot Barn Holdings Inc (NYSE:BOOT), Alector, Inc. (NASDAQ:ALEC), and Callon Petroleum Company (NYSE:CPE) to gather more data points. Our calculations also showed that HFWA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are a large number of formulas market participants can use to appraise publicly traded companies. A pair of the most under-the-radar formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can outpace the S&P 500 by a significant margin (see the details here).
[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's review the key hedge fund action regarding Heritage Financial Corporation (NASDAQ:HFWA).
What have hedge funds been doing with Heritage Financial Corporation (NASDAQ:HFWA)?
At Q3's end, a total of 9 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 HFWA over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cardinal Capital held the most valuable stake in Heritage Financial Corporation (NASDAQ:HFWA), which was worth $11 million at the end of the third quarter. On the second spot was Millennium Management which amassed $9.8 million worth of shares. Forest Hill Capital, Basswood Capital, and Marshall Wace were 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 Forest Hill Capital allocated the biggest weight to Heritage Financial Corporation (NASDAQ:HFWA), around 2.48% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 0.45 percent of its 13F equity portfolio to HFWA.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AlphaOne Capital Partners. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Heritage Financial Corporation (NASDAQ:HFWA) but similarly valued. We will take a look at Boot Barn Holdings Inc (NYSE:BOOT), Alector, Inc. (NASDAQ:ALEC), Callon Petroleum Company (NYSE:CPE), and Kadant Inc. (NYSE:KAI). All of these stocks' market caps resemble HFWA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BOOT,22,173218,0 ALEC,13,259407,0 CPE,28,383202,16 KAI,12,72191,1 Average,18.75,222005,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $42 million in HFWA's case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Kadant Inc. (NYSE:KAI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Heritage Financial Corporation (NASDAQ:HFWA) is even less popular than KAI. Hedge funds dodged a bullet by taking a bearish stance towards HFWA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HFWA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HFWA investors were disappointed as the stock returned 3.3% during the fourth quarter (through the end of November) 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.