Is Equity Bancshares, Inc. (EQBK) Going to Burn These Hedge Funds?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Equity Bancshares, Inc. (NASDAQ:EQBK) makes for a good investment right now.

Equity Bancshares, Inc. (NASDAQ:EQBK) investors should pay attention to a decrease in enthusiasm from smart money recently. Equity Bancshares, Inc. (NASDAQ:EQBK) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that EQBK isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.

Anton Schutz of Mendon Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Equity Bancshares, Inc. (NASDAQ:EQBK).

Hedge fund activity in Equity Bancshares, Inc. (NASDAQ:EQBK)

At third quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in EQBK 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.

More specifically, Mendon Capital Advisors was the largest shareholder of Equity Bancshares, Inc. (NASDAQ:EQBK), with a stake worth $8.2 million reported as of the end of September. Trailing Mendon Capital Advisors was Renaissance Technologies, which amassed a stake valued at $2.8 million. Second Curve 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 Mendon Capital Advisors allocated the biggest weight to Equity Bancshares, Inc. (NASDAQ:EQBK), around 4.76% of its 13F portfolio. Second Curve Capital is also relatively very bullish on the stock, earmarking 3.67 percent of its 13F equity portfolio to EQBK.

Judging by the fact that Equity Bancshares, Inc. (NASDAQ:EQBK) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedge funds who were dropping their full holdings in the third quarter. It’s worth mentioning that Mark Lee’s Forest Hill Capital sold off the largest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $2.1 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $0.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Equity Bancshares, Inc. (NASDAQ:EQBK) but similarly valued. We will take a look at Reliant Bancorp, Inc. (NASDAQ:RBNC), Neptune Wellness Solutions Inc (NASDAQ:NEPT), Xunlei Ltd (NASDAQ:XNET), DermTech, Inc. (NASDAQ:DMTK), Larimar Therapeutics, Inc. (NASDAQ:LRMR), Adicet Bio Inc. (NASDAQ:ACET), and MediciNova, Inc. (NASDAQ:MNOV). All of these stocks’ market caps match EQBK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBNC 3 5493 1
NEPT 5 41890 3
XNET 5 5302 0
DMTK 6 37635 -1
LRMR 17 167530 -1
ACET 7 89750 7
MNOV 5 2263 1
Average 6.9 49980 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $13 million in EQBK’s case. Larimar Therapeutics, Inc. (NASDAQ:LRMR) is the most popular stock in this table. On the other hand Reliant Bancorp, Inc. (NASDAQ:RBNC) is the least popular one with only 3 bullish hedge fund positions. Equity Bancshares, Inc. (NASDAQ:EQBK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EQBK is 31.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on EQBK as the stock returned 40.9% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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