With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Independent Bank Group Inc (NASDAQ:IBTX).
Is IBTX a good stock to buy now? Independent Bank Group Inc (NASDAQ:IBTX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of September. Our calculations also showed that IBTX 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Badger Meter, Inc. (NYSE:BMI), Chimera Investment Corporation (NYSE:CIM), and Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) to gather more data points.
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.
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 let’s take a look at the new hedge fund action encompassing Independent Bank Group Inc (NASDAQ:IBTX).
Do Hedge Funds Think IBTX Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IBTX over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Independent Bank Group Inc (NASDAQ:IBTX), with a stake worth $35.4 million reported as of the end of September. Trailing Citadel Investment Group was Royce & Associates, which amassed a stake valued at $19.9 million. Holocene Advisors, EJF Capital, and D E Shaw 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 Royce & Associates allocated the biggest weight to Independent Bank Group Inc (NASDAQ:IBTX), around 0.22% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to IBTX.
Seeing as Independent Bank Group Inc (NASDAQ:IBTX) has faced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $4.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Independent Bank Group Inc (NASDAQ:IBTX) but similarly valued. We will take a look at Badger Meter, Inc. (NYSE:BMI), Chimera Investment Corporation (NYSE:CIM), Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Prospect Capital Corporation (NASDAQ:PSEC), Pacific Biosciences of California (NASDAQ:PACB), CommVault Systems, Inc. (NASDAQ:CVLT), and Bed Bath & Beyond Inc. (NASDAQ:BBBY). This group of stocks’ market caps are closest to IBTX’s market cap.
|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 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $73 million in IBTX’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Independent Bank Group Inc (NASDAQ:IBTX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBTX is 20.7. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on IBTX as the stock returned 35% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.