Hedge Funds Dropped The Ball On NBT Bancorp Inc. (NBTB)

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% 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 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is NBT Bancorp Inc. (NASDAQ:NBTB) ready to rally soon? Hedge funds are in a pessimistic mood. The number of long hedge fund positions decreased by 2 lately. Our calculations also showed that NBTB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NBTB was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with NBTB holdings at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

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. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding NBT Bancorp Inc. (NASDAQ:NBTB).

How have hedgies been trading NBT Bancorp Inc. (NASDAQ:NBTB)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NBTB over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in NBT Bancorp Inc. (NASDAQ:NBTB). Renaissance Technologies has a $4.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $1.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions consist of Ken Griffin’s Citadel Investment Group, Peter Muller’s PDT Partners and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to NBT Bancorp Inc. (NASDAQ:NBTB), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0039 percent of its 13F equity portfolio to NBTB.

Judging by the fact that NBT Bancorp Inc. (NASDAQ:NBTB) has faced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their positions entirely in the third quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $0.4 million in stock. David E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to NBT Bancorp Inc. (NASDAQ:NBTB). We will take a look at IAMGOLD Corporation (NYSE:IAG), Redwood Trust, Inc. (NYSE:RWT), Owens-Illinois Inc (NYSE:OI), and Brinker International, Inc. (NYSE:EAT). This group of stocks’ market caps resemble NBTB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $8 million in NBTB’s case. Brinker International, Inc. (NYSE:EAT) is the most popular stock in this table. On the other hand IAMGOLD Corporation (NYSE:IAG) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks NBT Bancorp Inc. (NASDAQ:NBTB) is even less popular than IAG. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NBTB, though not to the same extent, as the stock returned 10.1% during the fourth quarter (through 11/30) and outperformed the market as well.

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