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Hedge Funds Are Dumping Associated Banc Corp (ASB)

In this article we will check out the progression of hedge fund sentiment towards Associated Banc Corp (NYSE:ASB) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Associated Banc Corp (NYSE:ASB) a cheap investment today? Hedge funds are in a bearish mood. The number of long hedge fund bets decreased by 8 lately. Our calculations also showed that ASB 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). ASB was in 16 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with ASB 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 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 S&P 500 ETFs by 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 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.

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, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Associated Banc Corp (NYSE:ASB).

Hedge fund activity in Associated Banc Corp (NYSE:ASB)

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in ASB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Pzena Investment Management was the largest shareholder of Associated Banc Corp (NYSE:ASB), with a stake worth $38.7 million reported as of the end of September. Trailing Pzena Investment Management was Citadel Investment Group, which amassed a stake valued at $21.4 million. AQR Capital Management, Millennium Management, and Royce & Associates 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 EJF Capital allocated the biggest weight to Associated Banc Corp (NYSE:ASB), around 0.39% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 0.29 percent of its 13F equity portfolio to ASB.

Judging by the fact that Associated Banc Corp (NYSE:ASB) has faced a decline in interest from the smart money, logic holds that there exists a select few fund managers that slashed their entire stakes in the first quarter. Intriguingly, Mika Toikka’s AlphaCrest Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $1.5 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also said goodbye to its stock, about $1.3 million worth. These moves are interesting, as total hedge fund interest dropped by 8 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Associated Banc Corp (NYSE:ASB). These stocks are Paramount Group Inc (NYSE:PGRE), The Ensign Group, Inc. (NASDAQ:ENSG), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), and Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL). This group of stocks’ market valuations are similar to ASB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PGRE 19 154841 -1
ENSG 18 88885 3
APLS 30 455911 -1
CBRL 23 101131 -1
Average 22.5 200192 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $125 million in ASB’s case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand The Ensign Group, Inc. (NASDAQ:ENSG) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Associated Banc Corp (NYSE:ASB) is even less popular than ENSG. Hedge funds dodged a bullet by taking a bearish stance towards ASB. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately ASB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ASB investors were disappointed as the stock returned 9.1% during the second quarter (through June 25th) 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 so far in 2020.

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