It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like PCB Bancorp (NASDAQ:PCB).
Is PCB Bancorp (NASDAQ:PCB) ready to rally soon? Prominent investors are in a bullish mood. The number of bullish hedge fund bets advanced by 2 recently. Our calculations also showed that PCB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PCB was in 4 hedge funds’ portfolios at the end of September. There were 2 hedge funds in our database with PCB positions at the end of the previous quarter.
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to analyze the key hedge fund action surrounding PCB Bancorp (NASDAQ:PCB).
What have hedge funds been doing with PCB Bancorp (NASDAQ:PCB)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in PCB over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, EJF Capital, managed by Emanuel J. Friedman, holds the biggest position in PCB Bancorp (NASDAQ:PCB). EJF Capital has a $24.9 million position in the stock, comprising 3.4% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies holding a $1.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and . In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to PCB Bancorp (NASDAQ:PCB), around 3.4% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0012 percent of its 13F equity portfolio to PCB.
As one would reasonably expect, specific money managers have been driving this bullishness. EJF Capital, managed by Emanuel J. Friedman, created the largest position in PCB Bancorp (NASDAQ:PCB). EJF Capital had $24.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1.4 million investment in the stock during the quarter. The other funds with brand new PCB positions are Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks similar to PCB Bancorp (NASDAQ:PCB). We will take a look at Oil-Dri Corporation of America (NYSE:ODC), Stellus Capital Investment Corporation (NYSE:SCM), The Joint Corp. (NASDAQ:JYNT), and Radiant Logistics, Inc. (NYSE:RLGT). This group of stocks’ market caps match PCB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ODC | 4 | 32094 | 1 |
| SCM | 4 | 5946 | 0 |
| JYNT | 12 | 57003 | 2 |
| RLGT | 14 | 11751 | 2 |
| Average | 8.5 | 26699 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $27 million in PCB’s case. Radiant Logistics, Inc. (NYSE:RLGT) is the most popular stock in this table. On the other hand Oil-Dri Corporation of America (NYSE:ODC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks PCB Bancorp (NASDAQ:PCB) is even less popular than ODC. Hedge funds dodged a bullet by taking a bearish stance towards PCB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PCB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PCB investors were disappointed as the stock returned 4.6% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.