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Were Hedge Funds Right About Banner Corporation (BANR)?

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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Banner Corporation (NASDAQ:BANR).

Banner Corporation (NASDAQ:BANR) shareholders have witnessed an increase in hedge fund sentiment recently. Banner Corporation (NASDAQ:BANR) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 20. There were 15 hedge funds in our database with BANR holdings at the end of December. Our calculations also showed that BANR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Michael Gelband of ExodusPoint Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to review the key hedge fund action encompassing Banner Corporation (NASDAQ:BANR).

Do Hedge Funds Think BANR Is A Good Stock To Buy Now?

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in BANR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Ken Griffin's Citadel Investment Group has the most valuable position in Banner Corporation (NASDAQ:BANR), worth close to $18.7 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Forest Hill Capital, led by Mark Lee, holding a $14 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass D. E. Shaw's D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Banner Corporation (NASDAQ:BANR), around 4.21% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to BANR.

Consequently, key money managers have jumped into Banner Corporation (NASDAQ:BANR) headfirst. Holocene Advisors, managed by Brandon Haley, established the most outsized position in Banner Corporation (NASDAQ:BANR). Holocene Advisors had $2.1 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Noam Gottesman's GLG Partners, Donald Sussman's Paloma Partners, and Michael Gelband's ExodusPoint Capital.

Let's also examine hedge fund activity in other stocks similar to Banner Corporation (NASDAQ:BANR). These stocks are Domtar Corporation (NYSE:UFS), United Natural Foods, Inc. (NYSE:UNFI), Hercules Capital Inc (NYSE:HTGC), Osisko Gold Royalties Ltd (NYSE:OR), Embraer SA (NYSE:ERJ), Euronav NV (NYSE:EURN), and Aurora Cannabis Inc. (NASDAQ:ACB). This group of stocks' market valuations match BANR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFS,27,285782,2 UNFI,23,103388,7 HTGC,10,30102,-2 OR,18,165245,2 ERJ,14,224549,3 EURN,17,93365,3 ACB,12,48845,2 Average,17.3,135897,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $54 million in BANR's case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Hercules Capital Inc (NYSE:HTGC) is the least popular one with only 10 bullish hedge fund positions. Banner Corporation (NASDAQ:BANR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BANR is 53.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately BANR wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BANR investors were disappointed as the stock returned -1.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.