Is Severn Bancorp Inc (NASDAQ:SVBI) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Severn Bancorp Inc (NASDAQ:SVBI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare SVBI to other stocks including CyberOptics Corporation (NASDAQ:CYBE), Energous Corporation (NASDAQ:WATT), and Matinas Biopharma Holdings, Inc. (NYSE:MTNB) to get a better sense of its popularity.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
[caption id="attachment_26073" align="aligncenter" width="600"] Jim Simons of RENAISSANCE TECHNOLOGIES[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the recent hedge fund action encompassing Severn Bancorp Inc (NASDAQ:SVBI).
Hedge fund activity in Severn Bancorp Inc (NASDAQ:SVBI)
At the end of the third quarter, a total of 3 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 SVBI over the last 17 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, EJF Capital was the largest shareholder of Severn Bancorp Inc (NASDAQ:SVBI), with a stake worth $8 million reported as of the end of September. Trailing EJF Capital was Tontine Asset Management, which amassed a stake valued at $2.4 million. Renaissance Technologies was 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 EJF Capital allocated the biggest weight to Severn Bancorp Inc (NASDAQ:SVBI), around 1.09% of its portfolio. Tontine Asset Management is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to SVBI.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks similar to Severn Bancorp Inc (NASDAQ:SVBI). We will take a look at CyberOptics Corporation (NASDAQ:CYBE), Energous Corporation (NASDAQ:WATT), Matinas Biopharma Holdings, Inc. (NYSEAMEX:MTNB), and Immunic, Inc. (NASDAQ:IMUX). This group of stocks' market valuations match SVBI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CYBE,4,5550,-1 WATT,5,1776,2 MTNB,5,6851,0 IMUX,2,540,0 Average,4,3679,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $11 million in SVBI's case. Energous Corporation (NASDAQ:WATT) is the most popular stock in this table. On the other hand Immunic, Inc. (NASDAQ:IMUX) is the least popular one with only 2 bullish hedge fund positions. Severn Bancorp Inc (NASDAQ:SVBI) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on SVBI as the stock returned 9.7% during Q4 (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.