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Hedge Funds Are Dumping RBB Bancorp (RBB)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards RBB Bancorp (NASDAQ:RBB) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is RBB Bancorp (NASDAQ:RBB) the right investment to pursue these days? Hedge funds were taking a pessimistic view. The number of bullish hedge fund positions retreated by 1 lately. Our calculations also showed that RBB 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.

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now we’re going to take a gander at the latest hedge fund action regarding RBB Bancorp (NASDAQ:RBB).

What have hedge funds been doing with RBB Bancorp (NASDAQ:RBB)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in RBB a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of RBB Bancorp (NASDAQ:RBB), with a stake worth $2 million reported as of the end of September. Trailing Renaissance Technologies was Polaris Capital Management, which amassed a stake valued at $1.5 million. Basswood Capital, Arrowstreet Capital, and Winton Capital Management 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 Zebra Capital Management allocated the biggest weight to RBB Bancorp (NASDAQ:RBB), around 0.38% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to RBB.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RBB as a viable investment and initiated a position in the stock.

Let’s go over hedge fund activity in other stocks similar to RBB Bancorp (NASDAQ:RBB). These stocks are Diebold Nixdorf Incorporated (NYSE:DBD), Golden Star Resources Ltd. (NYSE:GSS), Movado Group, Inc (NYSE:MOV), and SCVX Corp. (NYSE:SCVX). This group of stocks’ market caps resemble RBB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DBD 17 59383 -4
GSS 6 8515 3
MOV 13 13616 1
SCVX 14 84898 14
Average 12.5 41603 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $7 million in RBB’s case. Diebold Nixdorf Incorporated (NYSE:DBD) is the most popular stock in this table. On the other hand Golden Star Resources Ltd. (NYSE:GSS) is the least popular one with only 6 bullish hedge fund positions. RBB Bancorp (NASDAQ:RBB) 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 RBB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RBB investors were disappointed as the stock returned 0% 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.