We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Shore Bancshares, Inc. (NASDAQ:SHBI).
Is Shore Bancshares, Inc. (NASDAQ:SHBI) a buy, sell, or hold? Money managers are taking a pessimistic view. The number of long hedge fund positions shrunk by 1 recently. Our calculations also showed that SHBI isn't among the 30 most popular stocks among hedge funds. SHBI was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with SHBI holdings at the end of the previous quarter.
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 look at the fresh hedge fund action surrounding Shore Bancshares, Inc. (NASDAQ:SHBI).
How are hedge funds trading Shore Bancshares, Inc. (NASDAQ:SHBI)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in SHBI a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Shore Bancshares, Inc. (NASDAQ:SHBI) was held by Renaissance Technologies, which reported holding $6.9 million worth of stock at the end of September. It was followed by EJF Capital with a $4.7 million position. The only other hedge fund that is bullish on the company was Tontine Asset Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Basswood 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 none of the 750+ hedge funds tracked by Insider Monkey identified SHBI as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Shore Bancshares, Inc. (NASDAQ:SHBI) but similarly valued. These stocks are DHX Media Ltd (NASDAQ:DHXM), Gain Capital Holdings Inc (NYSE:GCAP), Ideanomics, Inc. (NASDAQ:IDEX), and The Bank of Princeton (NASDAQ:BPRN). All of these stocks' market caps resemble SHBI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHXM,4,57459,0 GCAP,9,21200,0 IDEX,1,23,-3 BPRN,2,14551,-1 Average,4,23308,-1 [/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 $23 million. That figure was $13 million in SHBI's case. Gain Capital Holdings Inc (NYSE:GCAP) is the most popular stock in this table. On the other hand Ideanomics, Inc. (NASDAQ:IDEX) is the least popular one with only 1 bullish hedge fund positions. Shore Bancshares, Inc. (NASDAQ:SHBI) 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 SHBI, though not to the same extent, as the stock returned 6.6% during the fourth quarter (through 11/22) and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.