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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Hope Bancorp, Inc. (NASDAQ:HOPE).
Is Hope Bancorp, Inc. (NASDAQ:HOPE) a buy, sell, or hold? Investors who are in the know were in a pessimistic mood. The number of long hedge fund bets decreased by 2 lately. Hope Bancorp, Inc. (NASDAQ:HOPE) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 19. Our calculations also showed that HOPE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 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.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now let's take a glance at the latest hedge fund action regarding Hope Bancorp, Inc. (NASDAQ:HOPE).
Do Hedge Funds Think HOPE Is A Good Stock To Buy Now?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in HOPE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the largest position in Hope Bancorp, Inc. (NASDAQ:HOPE), worth close to $26.2 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $12 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism encompass Mario Gabelli's GAMCO Investors, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Hope Bancorp, Inc. (NASDAQ:HOPE), around 0.16% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to HOPE.
Since Hope Bancorp, Inc. (NASDAQ:HOPE) has witnessed a decline in interest from the smart money, it's easy to see that there were a few fund managers that elected to cut their entire stakes in the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $0.6 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also sold off its stock, about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hope Bancorp, Inc. (NASDAQ:HOPE) but similarly valued. We will take a look at The E.W. Scripps Company (NASDAQ:SSP), Heska Corp (NASDAQ:HSKA), e.l.f. Beauty, Inc. (NYSE:ELF), Replimune Group, Inc. (NASDAQ:REPL), Arvinas, Inc. (NASDAQ:ARVN), BioLife Solutions, Inc. (NASDAQ:BLFS), and New Mountain Finance Corp. (NASDAQ:NMFC). This group of stocks' market caps are closest to HOPE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSP,14,97977,0 HSKA,15,155088,1 ELF,24,230236,2 REPL,14,169325,3 ARVN,26,181239,-5 BLFS,13,254136,2 NMFC,10,22832,0 Average,16.6,158690,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $53 million in HOPE's case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand New Mountain Finance Corp. (NASDAQ:NMFC) is the least popular one with only 10 bullish hedge fund positions. Hope Bancorp, Inc. (NASDAQ:HOPE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HOPE is 51.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on HOPE as the stock returned 41.6% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.