We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees your 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 West Bancorporation, Inc. (NASDAQ:WTBA).
West Bancorporation, Inc. (NASDAQ:WTBA) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Global Indemnity plc (NASDAQ:GBLI), Utah Medical Products, Inc. (NASDAQ:UTMD), and PCSB Financial Corporation (NASDAQ:PCSB) to gather more data points. Our calculations also showed that WTBA 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' 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_189632" align="alignnone" width="600"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a look at the recent hedge fund action encompassing West Bancorporation, Inc. (NASDAQ:WTBA).
How are hedge funds trading West Bancorporation, Inc. (NASDAQ:WTBA)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in WTBA a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exist a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in West Bancorporation, Inc. (NASDAQ:WTBA). Renaissance Technologies has an $8.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Driehaus Capital, managed by Richard Driehaus, which holds a $0.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers with similar optimism consist of David Harding's Winton Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position, Driehaus Capital allocated the biggest weight to West Bancorporation, Inc. (NASDAQ:WTBA), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to WTBA.
Due to the fact that West Bancorporation, Inc. (NASDAQ:WTBA) has experienced a decline in interest from the smart money, we can see that there was a specific group of fund managers who were dropping their full holdings heading into Q4. It's worth mentioning that Israel Englander's Millennium Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, valued at an estimated $0.4 million in stock, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital was right behind this move, as the fund cut about $0 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to West Bancorporation, Inc. (NASDAQ:WTBA). We will take a look at Global Indemnity plc (NASDAQ:GBLI), Utah Medical Products, Inc. (NASDAQ:UTMD), PCSB Financial Corporation (NASDAQ:PCSB), and Diamond Eagle Acquisition Corp. (NASDAQ:DEACU). This group of stocks' market valuations is closest to WTBA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBLI,6,25237,0 UTMD,6,34813,0 PCSB,9,26855,-1 DEACU,7,62426,7 Average,7,37333,1.5 [/table]
View the table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $9 million in WTBA's case. PCSB Financial Corporation (NASDAQ:PCSB) is the most popular stock in this table. On the other hand, Global Indemnity plc (NASDAQ:GBLI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks West Bancorporation, Inc. (NASDAQ:WTBA) is even less popular than GBLI. Hedge funds clearly dropped the ball on WTBA as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 WTBA as the stock returned 12.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.