In this article we will check out the progression of hedge fund sentiment towards Hope Bancorp, Inc. (NASDAQ:HOPE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Hope Bancorp, Inc. (NASDAQ:HOPE) the right pick for your portfolio? The smart money is becoming less hopeful. The number of long hedge fund positions retreated by 1 recently. Our calculations also showed that HOPE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HOPE was in 18 hedge funds' portfolios at the end of the first quarter of 2020. There were 19 hedge funds in our database with HOPE holdings at the end of the previous quarter. Video: 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_338852" align="aligncenter" width="400"] Richard S. Pzena of Pzena Investment Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a gander at the latest hedge fund action regarding Hope Bancorp, Inc. (NASDAQ:HOPE).
How are hedge funds trading Hope Bancorp, Inc. (NASDAQ:HOPE)?
Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in HOPE a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Hope Bancorp, Inc. (NASDAQ:HOPE), which was worth $26.3 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $4.7 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and Renaissance Technologies 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 Pzena Investment Management allocated the biggest weight to Hope Bancorp, Inc. (NASDAQ:HOPE), around 0.2% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to HOPE.
Since Hope Bancorp, Inc. (NASDAQ:HOPE) has experienced falling interest from the smart money, logic holds that there is a sect of hedgies who were dropping their positions entirely in the first quarter. It's worth mentioning that Israel Englander's Millennium Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, totaling close to $3.2 million in stock. Noam Gottesman's fund, GLG Partners, also said goodbye to its stock, about $2.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds in the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hope Bancorp, Inc. (NASDAQ:HOPE) but similarly valued. We will take a look at SFL Corporation Ltd. (NYSE:SFL), Comstock Resources Inc (NYSE:CRK), TriMas Corp (NASDAQ:TRS), and Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). This group of stocks' market valuations match HOPE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SFL,14,43537,0 CRK,3,2762,-4 TRS,13,71796,-2 MDGL,15,270102,-4 Average,11.25,97049,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $43 million in HOPE's case. Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) is the most popular stock in this table. On the other hand Comstock Resources Inc (NYSE:CRK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Hope Bancorp, Inc. (NASDAQ:HOPE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately HOPE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HOPE were disappointed as the stock returned 13.6% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.