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Were Hedge Funds Right About Piling Into The Bancorp, Inc. (TBBK)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on The Bancorp, Inc. (NASDAQ:TBBK) in order to identify whether reputable and successful top money managers continue to believe in its potential.

The Bancorp, Inc. (NASDAQ:TBBK) was in 16 hedge funds’ portfolios at the end of March. TBBK has experienced an increase in enthusiasm from smart money of late. There were 14 hedge funds in our database with TBBK positions at the end of the previous quarter. Our calculations also showed that tbbk 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.

Thomas Brown Tom Brown

Let’s take a gander at the new hedge fund action surrounding The Bancorp, Inc. (NASDAQ:TBBK).

How are hedge funds trading The Bancorp, Inc. (NASDAQ:TBBK)?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in TBBK a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TBBK Positions

Among these funds, Nantahala Capital Management held the most valuable stake in The Bancorp, Inc. (NASDAQ:TBBK), which was worth $21 million at the end of the first quarter. On the second spot was Rutabaga Capital Management which amassed $11.9 million worth of shares. Moreover, Second Curve Capital, D E Shaw, and Renaissance Technologies were also bullish on The Bancorp, Inc. (NASDAQ:TBBK), allocating a large percentage of their portfolios to this stock.

Now, key money managers were breaking ground themselves. GLG Partners, managed by Noam Gottesman, established the most outsized position in The Bancorp, Inc. (NASDAQ:TBBK). GLG Partners had $0.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is David Harding’s Winton Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to The Bancorp, Inc. (NASDAQ:TBBK). We will take a look at Equity Bancshares, Inc. (NASDAQ:EQBK), Earthstone Energy, Inc. (NYSE:ESTE), BioSpecifics Technologies Corp. (NASDAQ:BSTC), and LAIX Inc. (NYSE:LAIX). This group of stocks’ market valuations are similar to TBBK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQBK 7 42572 0
ESTE 7 7208 0
BSTC 12 48595 2
LAIX 2 1729 1
Average 7 25026 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $69 million in TBBK’s case. BioSpecifics Technologies Corp. (NASDAQ:BSTC) is the most popular stock in this table. On the other hand LAIX Inc. (NYSE:LAIX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks The Bancorp, Inc. (NASDAQ:TBBK) is more popular among hedge funds. 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. Hedge funds were also right about betting on TBBK as the stock returned 11.8% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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