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At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Macatawa Bank Corporation (NASDAQ:MCBC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the second 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 New Age Beverages Corporation (NASDAQ:NBEV), Civista Bancshares, Inc. (NASDAQ:CIVB), and Rimini Street, Inc. (NASDAQ:RMNI) to gather more data points. Our calculations also showed that MCBC 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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We're going to take a look at the key hedge fund action surrounding Macatawa Bank Corporation (NASDAQ:MCBC).
Hedge fund activity in Macatawa Bank Corporation (NASDAQ:MCBC)
Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MCBC over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Elizabeth Park Capital Management was the largest shareholder of Macatawa Bank Corporation (NASDAQ:MCBC), with a stake worth $12.2 million reported as of the end of March. Trailing Elizabeth Park Capital Management was Renaissance Technologies, which amassed a stake valued at $11.1 million. Two Sigma Advisors, Millennium Management, and Zebra Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. 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 Millennium Management).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Macatawa Bank Corporation (NASDAQ:MCBC) but similarly valued. We will take a look at New Age Beverages Corporation (NASDAQ:NBEV), Civista Bancshares, Inc. (NASDAQ:CIVB), Rimini Street, Inc. (NASDAQ:RMNI), and Willis Lease Finance Corporation (NASDAQ:WLFC). This group of stocks' market caps resemble MCBC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBEV,4,2369,-4 CIVB,4,24223,-1 RMNI,6,12325,2 WLFC,3,28638,1 Average,4.25,16889,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $24 million in MCBC's case. Rimini Street, Inc. (NASDAQ:RMNI) is the most popular stock in this table. On the other hand Willis Lease Finance Corporation (NASDAQ:WLFC) is the least popular one with only 3 bullish hedge fund positions. Macatawa Bank Corporation (NASDAQ:MCBC) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on MCBC, though not to the same extent, as the stock returned 2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
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