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Did Hedge Funds Make The Right Call On PacWest Bancorp (PACW) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of PacWest Bancorp (NASDAQ:PACW) based on that data and determine whether they were really smart about the stock.

Is PacWest Bancorp (NASDAQ:PACW) an attractive investment right now? The best stock pickers were turning less bullish. The number of long hedge fund bets were trimmed by 8 lately. Our calculations also showed that PACW 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). PACW was in 23 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with PACW holdings at the end of the previous quarter.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding PacWest Bancorp (NASDAQ:PACW).

What does smart money think about PacWest Bancorp (NASDAQ:PACW)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PACW over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in PacWest Bancorp (NASDAQ:PACW) was held by Cardinal Capital, which reported holding $52 million worth of stock at the end of September. It was followed by Millennium Management with a $13.3 million position. Other investors bullish on the company included Fisher Asset Management, Basswood Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to PacWest Bancorp (NASDAQ:PACW), around 2.56% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, dishing out 1.38 percent of its 13F equity portfolio to PACW.

Due to the fact that PacWest Bancorp (NASDAQ:PACW) has experienced a decline in interest from hedge fund managers, we can see that there were a few fund managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $14.2 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $1.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PacWest Bancorp (NASDAQ:PACW) but similarly valued. These stocks are Element Solutions Inc. (NYSE:ESI), PotlatchDeltic Corporation (NASDAQ:PCH), John Wiley & Sons Inc (NYSE:JW), and Webster Financial Corporation (NYSE:WBS). This group of stocks’ market values are similar to PACW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESI 35 387209 -2
PCH 16 234507 0
JW 17 55212 -4
WBS 33 223111 9
Average 25.25 225010 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $122 million in PACW’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 16 bullish hedge fund positions. PacWest Bancorp (NASDAQ:PACW) 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 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 and surpassed the market by 15.5 percentage points. Unfortunately PACW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PACW investors were disappointed as the stock returned 11.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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