Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hope Bancorp, Inc. (NASDAQ:HOPE) has seen a decrease in support from the world’s most elite money managers lately. HOPE was in 14 hedge funds’ portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with HOPE holdings at the end of the previous quarter. Our calculations also showed that HOPE isn’t among the 30 most popular stocks among hedge funds.
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.
Let’s take a gander at the recent hedge fund action encompassing Hope Bancorp, Inc. (NASDAQ:HOPE).
What does smart money think about Hope Bancorp, Inc. (NASDAQ:HOPE)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in HOPE a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Hope Bancorp, Inc. (NASDAQ:HOPE) was held by Pzena Investment Management, which reported holding $37.7 million worth of stock at the end of March. It was followed by GAMCO Investors with a $7.7 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Citadel Investment Group.
Judging by the fact that Hope Bancorp, Inc. (NASDAQ:HOPE) has faced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of funds that slashed their positions entirely in the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $3.2 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hope Bancorp, Inc. (NASDAQ:HOPE) but similarly valued. We will take a look at Nexa Resources S.A. (NYSE:NEXA), Casella Waste Systems Inc. (NASDAQ:CWST), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), and Qudian Inc. (NYSE:QD). This group of stocks’ market caps resemble HOPE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $71 million in HOPE’s case. Qudian Inc. (NYSE:QD) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 11 bullish hedge fund positions. Hope Bancorp, Inc. (NASDAQ:HOPE) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HOPE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HOPE investors were disappointed as the stock returned 2.9% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.