Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of German American Bancorp., Inc. (NASDAQ:GABC).
German American Bancorp., Inc. (NASDAQ:GABC) investors should be aware of a decrease in hedge fund sentiment lately. GABC was in 6 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with GABC holdings at the end of the previous quarter. Our calculations also showed that GABC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Keeping this in mind we’re going to take a glance at the fresh hedge fund action encompassing German American Bancorp., Inc. (NASDAQ:GABC).
What does smart money think about German American Bancorp., Inc. (NASDAQ:GABC)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GABC over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in German American Bancorp., Inc. (NASDAQ:GABC). Renaissance Technologies has a $11.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Richard Driehaus’s Driehaus Capital, Ken Griffin’s Citadel Investment Group and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Driehaus Capital allocated the biggest weight to German American Bancorp., Inc. (NASDAQ:GABC), around 0.03% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to GABC.
Judging by the fact that German American Bancorp., Inc. (NASDAQ:GABC) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. At the top of the heap, Israel Englander’s Millennium Management cut the biggest investment of all the hedgies followed by Insider Monkey, totaling about $3.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund dumped about $1.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as German American Bancorp., Inc. (NASDAQ:GABC) but similarly valued. We will take a look at Chatham Lodging Trust (NYSE:CLDT), Cara Therapeutics Inc (NASDAQ:CARA), SP Plus Corp (NASDAQ:SP), and Stoneridge, Inc. (NYSE:SRI). This group of stocks’ market valuations resemble GABC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $15 million in GABC’s case. Stoneridge, Inc. (NYSE:SRI) is the most popular stock in this table. On the other hand Chatham Lodging Trust (NYSE:CLDT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks German American Bancorp., Inc. (NASDAQ:GABC) is even less popular than CLDT. Hedge funds dodged a bullet by taking a bearish stance towards GABC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GABC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GABC investors were disappointed as the stock returned 5.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.