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Did Hedge Funds Make The Right Call On Investors Bancorp, Inc. (ISBC) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Investors Bancorp, Inc. (NASDAQ:ISBC) and determine whether hedge funds had an edge regarding this stock.

Is Investors Bancorp, Inc. (NASDAQ:ISBC) the right investment to pursue these days? The smart money was getting less optimistic. The number of long hedge fund bets were trimmed by 4 in recent months. Our calculations also showed that ISBC 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.

If you’d ask most market participants, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are over 8000 funds in operation today, Our experts look at the leaders of this club, approximately 850 funds. Most estimates calculate that this group of people have their hands on bulk of all hedge funds’ total capital, and by observing their finest equity investments, Insider Monkey has figured out several investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Michael Price MFP Investors

Michael Price of MFP Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to take a glance at the fresh hedge fund action surrounding Investors Bancorp, Inc. (NASDAQ:ISBC).

Hedge fund activity in Investors Bancorp, Inc. (NASDAQ:ISBC)

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ISBC over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Investors Bancorp, Inc. (NASDAQ:ISBC), with a stake worth $53.9 million reported as of the end of September. Trailing Citadel Investment Group was Carlson Capital, which amassed a stake valued at $16.3 million. MFP Investors, Renaissance Technologies, and Gillson Capital 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 MFP Investors allocated the biggest weight to Investors Bancorp, Inc. (NASDAQ:ISBC), around 2.11% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 1.59 percent of its 13F equity portfolio to ISBC.

Due to the fact that Investors Bancorp, Inc. (NASDAQ:ISBC) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their positions entirely last quarter. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital cut the biggest investment of the 750 funds followed by Insider Monkey, worth close to $2.1 million in stock, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital was right behind this move, as the fund said goodbye to about $1.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Investors Bancorp, Inc. (NASDAQ:ISBC) but similarly valued. These stocks are Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), Cronos Group Inc. (NASDAQ:CRON), Ryman Hospitality Properties, Inc. (NYSE:RHP), and ESCO Technologies Inc. (NYSE:ESE). This group of stocks’ market caps resemble ISBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHVN 29 390989 -6
CRON 10 73477 0
RHP 26 266783 -4
ESE 8 59966 -1
Average 18.25 197804 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $136 million in ISBC’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 8 bullish hedge fund positions. Investors Bancorp, Inc. (NASDAQ:ISBC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ISBC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ISBC were disappointed as the stock returned 7.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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