Is United Community Banks Inc (NASDAQ:UCBI) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
United Community Banks Inc (NASDAQ:UCBI) was in 12 hedge funds’ portfolios at the end of June. UCBI has experienced a decrease in support from the world’s most elite money managers in recent months. There were 15 hedge funds in our database with UCBI positions at the end of the previous quarter. Our calculations also showed that UCBI isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the fresh hedge fund action encompassing United Community Banks Inc (NASDAQ:UCBI).
How have hedgies been trading United Community Banks Inc (NASDAQ:UCBI)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UCBI over the last 16 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in United Community Banks Inc (NASDAQ:UCBI), which was worth $31.9 million at the end of the second quarter. On the second spot was Elizabeth Park Capital Management which amassed $6.9 million worth of shares. Moreover, D E Shaw, Mendon Capital Advisors, and Citadel Investment Group were also bullish on United Community Banks Inc (NASDAQ:UCBI), allocating a large percentage of their portfolios to this stock.
Due to the fact that United Community Banks Inc (NASDAQ:UCBI) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes heading into Q3. Intriguingly, Israel Englander’s Millennium Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, worth about $6.8 million in stock, and Ira Unschuld’s Brant Point Investment Management was right behind this move, as the fund cut about $0.8 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Community Banks Inc (NASDAQ:UCBI) but similarly valued. We will take a look at Worthington Industries, Inc. (NYSE:WOR), PQ Group Holdings Inc. (NYSE:PQG), Acceleron Pharma Inc (NASDAQ:XLRN), and Simmons First National Corporation (NASDAQ:SFNC). This group of stocks’ market caps resemble UCBI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WOR | 13 | 61991 | -4 |
| PQG | 6 | 55623 | 0 |
| XLRN | 21 | 349171 | 0 |
| SFNC | 12 | 31976 | 3 |
| Average | 13 | 124690 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $56 million in UCBI’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 6 bullish hedge fund positions. United Community Banks Inc (NASDAQ:UCBI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UCBI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UCBI investors were disappointed as the stock returned -0.1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
