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Hedge Funds Aren’t Crazy About SmartFinancial, Inc. (SMBK) Anymore

In this article you are going to find out whether hedge funds think SmartFinancial, Inc. (NASDAQ:SMBK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is SmartFinancial, Inc. (NASDAQ:SMBK) worth your attention right now? Investors who are in the know are becoming less confident. The number of long hedge fund bets retreated by 1 lately. Our calculations also showed that SMBK 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.

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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the recent hedge fund action encompassing SmartFinancial, Inc. (NASDAQ:SMBK).

How have hedgies been trading SmartFinancial, Inc. (NASDAQ:SMBK)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in SMBK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in SmartFinancial, Inc. (NASDAQ:SMBK) was held by Private Capital Management, which reported holding $6.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4.3 million position. Other investors bullish on the company included EJF Capital, Forest Hill Capital, and Winton Capital Management. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to SmartFinancial, Inc. (NASDAQ:SMBK), around 2.12% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 1.78 percent of its 13F equity portfolio to SMBK.

Because SmartFinancial, Inc. (NASDAQ:SMBK) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers that slashed their full holdings in the first quarter. Interestingly, Israel Englander’s Millennium Management dumped the largest investment of all the hedgies tracked by Insider Monkey, worth about $2.6 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SmartFinancial, Inc. (NASDAQ:SMBK) but similarly valued. These stocks are Galera Therapeutics, Inc. (NASDAQ:GRTX), Minerva Neurosciences, Inc (NASDAQ:NERV), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), and PAR Technology Corporation (NYSE:PAR). This group of stocks’ market valuations match SMBK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRTX 5 33282 -1
NERV 16 28688 0
HMHC 20 67758 -2
PAR 8 65546 -4
Average 12.25 48819 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $19 million in SMBK’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Galera Therapeutics, Inc. (NASDAQ:GRTX) is the least popular one with only 5 bullish hedge fund positions. SmartFinancial, Inc. (NASDAQ:SMBK) 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately SMBK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SMBK investors were disappointed as the stock returned 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.

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