Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Park National Corporation (NYSE:PRK) was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. PRK has experienced an increase in hedge fund sentiment of late. There were 5 hedge funds in our database with PRK positions at the end of the previous quarter. Our calculations also showed that PRK isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action regarding Park National Corporation (NYSE:PRK).
How are hedge funds trading Park National Corporation (NYSE:PRK)?
At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from the first quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in PRK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Park National Corporation (NYSE:PRK), which was worth $12.6 million at the end of the second quarter. On the second spot was ExodusPoint Capital which amassed $0.6 million worth of shares. Moreover, Tontine Asset Management, AQR Capital Management, and Two Sigma Advisors were also bullish on Park National Corporation (NYSE:PRK), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, initiated the most valuable position in Park National Corporation (NYSE:PRK). ExodusPoint Capital had $0.6 million invested in the company at the end of the quarter. Jeffrey Gendell’s Tontine Asset Management also initiated a $0.5 million position during the quarter. The other funds with brand new PRK positions are Ken Griffin’s Citadel Investment Group, David Harding’s Winton Capital Management, and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks similar to Park National Corporation (NYSE:PRK). We will take a look at Federal Signal Corporation (NYSE:FSS), Axos Financial, Inc. (NYSE:AX), NBT Bancorp Inc. (NASDAQ:NBTB), and Freshpet Inc (NASDAQ:FRPT). All of these stocks’ market caps are similar to PRK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FSS | 20 | 52902 | 0 |
| AX | 14 | 49005 | 1 |
| NBTB | 8 | 10119 | 2 |
| FRPT | 24 | 156672 | -1 |
| Average | 16.5 | 67175 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $15 million in PRK’s case. Freshpet Inc (NASDAQ:FRPT) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Park National Corporation (NYSE:PRK) is even less popular than NBTB. Hedge funds dodged a bullet by taking a bearish stance towards PRK. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRK investors were disappointed as the stock returned -3.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.