Did Hedge Funds Make The Right Call On Umpqua Holdings Corp (UMPQ) ?

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 Umpqua Holdings Corp (NASDAQ:UMPQ) and determine whether hedge funds had an edge regarding this stock.

Is Umpqua Holdings Corp (NASDAQ:UMPQ) ready to rally soon? Prominent investors were taking a bullish view. The number of bullish hedge fund positions improved by 7 lately. Our calculations also showed that UMPQ 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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. With all of this in mind let’s review the key hedge fund action surrounding Umpqua Holdings Corp (NASDAQ:UMPQ).

What does smart money think about Umpqua Holdings Corp (NASDAQ:UMPQ)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in UMPQ over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Umpqua Holdings Corp (NASDAQ:UMPQ). Citadel Investment Group has a $49.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Ken Fisher of Fisher Asset Management, with a $31.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism encompass Richard S. Pzena’s Pzena Investment Management, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to Umpqua Holdings Corp (NASDAQ:UMPQ), around 3.31% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 1.58 percent of its 13F equity portfolio to UMPQ.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Pzena Investment Management, managed by Richard S. Pzena, established the most outsized position in Umpqua Holdings Corp (NASDAQ:UMPQ). Pzena Investment Management had $16.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $11.8 million position during the quarter. The other funds with brand new UMPQ positions are Daniel Johnson’s Gillson Capital, Jeff Osher’s No Street Capital, and Anton Schutz’s Mendon Capital Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Umpqua Holdings Corp (NASDAQ:UMPQ). We will take a look at TopBuild Corp (NYSE:BLD), LendingTree, Inc (NASDAQ:TREE), Lattice Semiconductor Corporation (NASDAQ:LSCC), and Assured Guaranty Ltd. (NYSE:AGO). This group of stocks’ market valuations resemble UMPQ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BLD 20 79991 -9
TREE 21 74029 -5
LSCC 26 531051 -6
AGO 28 299640 -5
Average 23.75 246178 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $184 million in UMPQ’s case. Assured Guaranty Ltd. (NYSE:AGO) is the most popular stock in this table. On the other hand TopBuild Corp (NYSE:BLD) is the least popular one with only 20 bullish hedge fund positions. Umpqua Holdings Corp (NASDAQ:UMPQ) 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 UMPQ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UMPQ investors were disappointed as the stock returned -2.4% 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.

Follow Umpqua Holdings Corp (NASDAQ:UMPQ)

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