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Is Meridian Bancorp, Inc. (NASDAQ:EBSB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Meridian Bancorp, Inc. (NASDAQ:EBSB) the right investment to pursue these days? Investors who are in the know are selling. The number of long hedge fund positions went down by 1 lately. Our calculations also showed that EBSB 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.
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 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 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.
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David E. Shaw of D.E. Shaw[/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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the new hedge fund action surrounding Meridian Bancorp, Inc. (NASDAQ:EBSB).
What have hedge funds been doing with Meridian Bancorp, Inc. (NASDAQ:EBSB)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EBSB over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Meridian Bancorp, Inc. (NASDAQ:EBSB), which was worth $38.9 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $23.9 million worth of shares. Castine Capital Management, D E Shaw, and Arrowstreet Capital 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 Castine Capital Management allocated the biggest weight to Meridian Bancorp, Inc. (NASDAQ:EBSB), around 2.44% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, designating 0.31 percent of its 13F equity portfolio to EBSB.
Seeing as Meridian Bancorp, Inc. (NASDAQ:EBSB) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers who were dropping their positions entirely heading into Q4. It's worth mentioning that Ken Griffin's Citadel Investment Group dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $1.3 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $0.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Meridian Bancorp, Inc. (NASDAQ:EBSB) but similarly valued. We will take a look at Primoris Services Corporation (NASDAQ:PRIM), Sandstorm Gold Ltd. (NYSE:SAND), NetGear, Inc. (NASDAQ:NTGR), and Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS). All of these stocks' market caps are similar to EBSB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRIM,13,28390,1 SAND,14,66333,-1 NTGR,19,23465,8 VLRS,8,111630,1 Average,13.5,57455,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $88 million in EBSB's case. NetGear, Inc. (NASDAQ:NTGR) is the most popular stock in this table. On the other hand Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) is the least popular one with only 8 bullish hedge fund positions. Meridian Bancorp, Inc. (NASDAQ:EBSB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EBSB, though not to the same extent, as the stock returned 7.4% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.