Is Umpqua Holdings Corp (UMPQ) Going to Burn These Hedge Funds?
It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Umpqua Holdings Corp (NASDAQ:UMPQ).
Umpqua Holdings Corp (NASDAQ:UMPQ) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds' portfolios at the end of September. At the end of this article we will also compare UMPQ to other stocks including Valley National Bancorp (NASDAQ:VLY), Blueprint Medicines Corporation (NASDAQ:BPMC), and GSX Techedu Inc. (NYSE:GSX) to get a better sense of its popularity.
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.
[caption id="attachment_30600" align="aligncenter" width="600"]
Bruce Kovner of Caxton Associates LP[/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 key hedge fund action surrounding Umpqua Holdings Corp (NASDAQ:UMPQ).
What does smart money think about Umpqua Holdings Corp (NASDAQ:UMPQ)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in UMPQ a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Umpqua Holdings Corp (NASDAQ:UMPQ), with a stake worth $54 million reported as of the end of September. Trailing Fisher Asset Management was Two Sigma Advisors, which amassed a stake valued at $24.1 million. AQR Capital Management, Renaissance Technologies, and EJF 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 EJF Capital allocated the biggest weight to Umpqua Holdings Corp (NASDAQ:UMPQ), around 1% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to UMPQ.
Because Umpqua Holdings Corp (NASDAQ:UMPQ) has faced a decline in interest from the smart money, it's easy to see that there lies a certain "tier" of money managers that elected to cut their positions entirely in the third quarter. Intriguingly, Benjamin A. Smith's Laurion Capital Management dropped the largest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $0.9 million in stock. Gregg Moskowitz's fund, Interval Partners, also cut its stock, about $0.5 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Umpqua Holdings Corp (NASDAQ:UMPQ). These stocks are Valley National Bancorp (NASDAQ:VLY), Blueprint Medicines Corporation (NASDAQ:BPMC), GSX Techedu Inc. (NYSE:GSX), and Sibanye Gold Ltd (NYSE:SBGL). This group of stocks' market values resemble UMPQ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLY,15,13438,4 BPMC,26,707543,-1 GSX,3,6778,1 SBGL,14,135328,5 Average,14.5,215772,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $141 million in UMPQ's case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 3 bullish hedge fund positions. Umpqua Holdings Corp (NASDAQ:UMPQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately UMPQ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UMPQ were disappointed as the stock returned -0.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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