As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about PCSB Financial Corporation (NASDAQ:PCSB).
Is PCSB Financial Corporation (NASDAQ:PCSB) going to take off soon? The best stock pickers are becoming less confident. The number of bullish hedge fund bets went down by 1 recently. Our calculations also showed that PCSB 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s analyze the fresh hedge fund action encompassing PCSB Financial Corporation (NASDAQ:PCSB).
How have hedgies been trading PCSB Financial Corporation (NASDAQ:PCSB)?
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 -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PCSB over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Castine Capital Management, managed by Paul Magidson, Jonathan Cohen. And Ostrom Enders, holds the most valuable position in PCSB Financial Corporation (NASDAQ:PCSB). Castine Capital Management has a $11 million position in the stock, comprising 3% of its 13F portfolio. On Castine Capital Management’s heels is Royce & Associates, led by Chuck Royce, holding a $4.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions contain Renaissance Technologies, John D. Gillespie’s Prospector Partners and Frederick DiSanto’s Ancora Advisors. In terms of the portfolio weights assigned to each position Castine Capital Management allocated the biggest weight to PCSB Financial Corporation (NASDAQ:PCSB), around 3.02% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 0.52 percent of its 13F equity portfolio to PCSB.
Judging by the fact that PCSB Financial Corporation (NASDAQ:PCSB) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there were a few money managers that slashed their entire stakes by the end of the third quarter. Interestingly, Emanuel J. Friedman’s EJF Capital sold off the largest position of all the hedgies watched by Insider Monkey, worth an estimated $2.3 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also dumped its stock, about $0 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PCSB Financial Corporation (NASDAQ:PCSB) but similarly valued. These stocks are Diamond Eagle Acquisition Corp. (NASDAQ:DEACU), Enterprise Bancorp, Inc (NASDAQ:EBTC), Guaranty Bancshares, Inc. (NASDAQ:GNTY), and Macatawa Bank Corporation (NASDAQ:MCBC). This group of stocks’ market caps are closest to PCSB’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 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $27 million in PCSB’s case. Diamond Eagle Acquisition Corp. (NASDAQ:DEACU) is the most popular stock in this table. On the other hand Enterprise Bancorp, Inc (NASDAQ:EBTC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks PCSB Financial Corporation (NASDAQ:PCSB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PCSB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PCSB were disappointed as the stock returned 2.3% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.