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It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Veritex Holdings Inc (NASDAQ:VBTX).
Veritex Holdings Inc (NASDAQ:VBTX) has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that VBTX 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.
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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Matthew Lindenbaum of Basswood Capital[/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 go over the fresh hedge fund action surrounding Veritex Holdings Inc (NASDAQ:VBTX).
Hedge fund activity in Veritex Holdings Inc (NASDAQ:VBTX)
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the second quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in VBTX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Mendon Capital Advisors held the most valuable stake in Veritex Holdings Inc (NASDAQ:VBTX), which was worth $44 million at the end of the third quarter. On the second spot was Millennium Management which amassed $24.4 million worth of shares. Forest Hill Capital, Citadel Investment Group, and Basswood 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 Mendon Capital Advisors allocated the biggest weight to Veritex Holdings Inc (NASDAQ:VBTX), around 7.41% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, setting aside 3.11 percent of its 13F equity portfolio to VBTX.
Consequently, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Veritex Holdings Inc (NASDAQ:VBTX). Arrowstreet Capital had $0.7 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.4 million position during the quarter. The only other fund with a brand new VBTX position is Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Veritex Holdings Inc (NASDAQ:VBTX) but similarly valued. These stocks are Independence Realty Trust Inc (NYSE:IRT), Dine Brands Global, Inc. (NYSE:DIN), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), and CBIZ, Inc. (NYSE:CBZ). This group of stocks' market caps are similar to VBTX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRT,12,95303,4 DIN,15,152183,0 SBCF,6,22958,0 CBZ,10,177241,-4 Average,10.75,111921,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $86 million in VBTX's case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 6 bullish hedge fund positions. Veritex Holdings Inc (NASDAQ:VBTX) 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 VBTX, though not to the same extent, as the stock returned 7.7% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.