Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
ServisFirst Bancshares, Inc. (NASDAQ:SFBS) was in 10 hedge funds' portfolios at the end of March. SFBS investors should be aware of a decrease in enthusiasm from smart money lately. There were 11 hedge funds in our database with SFBS positions at the end of the previous quarter. Our calculations also showed that SFBS isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the new hedge fund action encompassing ServisFirst Bancshares, Inc. (NASDAQ:SFBS).
What does smart money think about ServisFirst Bancshares, Inc. (NASDAQ:SFBS)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in SFBS a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in ServisFirst Bancshares, Inc. (NASDAQ:SFBS) was held by Fisher Asset Management, which reported holding $2.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $1.8 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Royce & Associates.
Because ServisFirst Bancshares, Inc. (NASDAQ:SFBS) has experienced falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that slashed their entire stakes by the end of the third quarter. Interestingly, Peter Muller's PDT Partners dumped the biggest stake of the 700 funds watched by Insider Monkey, totaling an estimated $0.7 million in stock, and Hoon Kim's Quantinno Capital was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ServisFirst Bancshares, Inc. (NASDAQ:SFBS) but similarly valued. These stocks are Endo International plc (NASDAQ:ENDP), The Michaels Companies Inc (NASDAQ:MIK), Northwest Bancshares, Inc. (NASDAQ:NWBI), and InVitae Corporation (NYSE:NVTA). All of these stocks' market caps match SFBS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENDP,19,337424,-4 MIK,32,157799,2 NWBI,11,68814,2 NVTA,28,348354,4 Average,22.5,228098,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $11 million in SFBS's case. The Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand Northwest Bancshares, Inc. (NASDAQ:NWBI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is even less popular than NWBI. Hedge funds dodged a bullet by taking a bearish stance towards SFBS. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SFBS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SFBS investors were disappointed as the stock returned -1.7% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.