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Were Hedge Funds Right About Dumping Berkshire Hills Bancorp, Inc. (BHLB)?

Abigail Fisher

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 28 holdings, data that is available nowhere else. Should you consider Berkshire Hills Bancorp, Inc. (NYSE:BHLB) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) investors should pay attention to a decrease in activity from the world's largest hedge funds lately. BHLB was in 9 hedge funds' portfolios at the end of June. There were 13 hedge funds in our database with BHLB holdings at the end of the previous quarter. Our calculations also showed that BHLB isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

BHLB_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the latest hedge fund action surrounding Berkshire Hills Bancorp, Inc. (NYSE:BHLB).

How are hedge funds trading Berkshire Hills Bancorp, Inc. (NYSE:BHLB)?

At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the first quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in BHLB 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.

Dmitry Balyasny

More specifically, Renaissance Technologies was the largest shareholder of Berkshire Hills Bancorp, Inc. (NYSE:BHLB), with a stake worth $15.9 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $12 million. Balyasny Asset Management, EJF Capital, and Prospector Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Because Berkshire Hills Bancorp, Inc. (NYSE:BHLB) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedge funds who sold off their entire stakes heading into Q3. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP cut the largest stake of the "upper crust" of funds monitored by Insider Monkey, comprising close to $3.9 million in stock, and Ravi Chopra's Azora Capital was right behind this move, as the fund dumped about $1.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let's go over hedge fund activity in other stocks similar to Berkshire Hills Bancorp, Inc. (NYSE:BHLB). We will take a look at State Auto Financial Corporation (NASDAQ:STFC), The RMR Group Inc. (NASDAQ:RMR), Universal Corp (NYSE:UVV), and Dillard's, Inc. (NYSE:DDS). All of these stocks' market caps are closest to BHLB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STFC,7,23214,2 RMR,22,206825,2 UVV,18,118445,1 DDS,20,207603,-8 Average,16.75,139022,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $56 million in BHLB's case. The RMR Group Inc. (NASDAQ:RMR) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 7 bullish hedge fund positions. Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BHLB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BHLB investors were disappointed as the stock returned -6% during the third quarter 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 in 2019.

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

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