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Did Hedge Funds Make The Right Call On Home Bancshares, Inc. (Conway, AR) (HOMB) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtHome Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. HOMB has seen an increase in hedge fund sentiment lately. There were 12 hedge funds in our database with HOMB holdings at the end of the previous quarter. Our calculations also showed that HOMB isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to review the latest hedge fund action regarding Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB).

Hedge fund activity in Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB)

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in HOMB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Balyasny Asset Management was the largest shareholder of Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), with a stake worth $3.3 million reported as of the end of September. Trailing Balyasny Asset Management was GLG Partners, which amassed a stake valued at $3.2 million. Basswood Capital, Citadel Investment Group, and AQR Capital Management 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 AlphaOne Capital Partners allocated the biggest weight to Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), around 0.63% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.26 percent of its 13F equity portfolio to HOMB.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. AQR Capital Management, managed by Cliff Asness, established the largest position in Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB). AQR Capital Management had $1.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.9 million position during the quarter. The other funds with brand new HOMB positions are D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) but similarly valued. We will take a look at National Beverage Corp. (NASDAQ:FIZZ), Stepan Company (NYSE:SCL), BancorpSouth Bank (NYSE:BXS), and Investors Bancorp, Inc. (NASDAQ:ISBC). This group of stocks’ market values are closest to HOMB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIZZ 20 202468 -1
SCL 10 48020 -3
BXS 15 36662 1
ISBC 26 136450 -4
Average 17.75 105900 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $16 million in HOMB’s case. Investors Bancorp, Inc. (NASDAQ:ISBC) is the most popular stock in this table. On the other hand Stepan Company (NYSE:SCL) is the least popular one with only 10 bullish hedge fund positions. Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on HOMB as the stock returned 40.5% since Q1 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.