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Should You Avoid German American Bancorp., Inc. (GABC)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards German American Bancorp., Inc. (NASDAQ:GABC).

Is German American Bancorp., Inc. (NASDAQ:GABC) a buy, sell, or hold? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions were cut by 1 in recent months. Our calculations also showed that GABC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). GABC was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. There were 5 hedge funds in our database with GABC positions at the end of the previous quarter.

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 44 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.

Xiniya Earnings Call Transcript XNY 2014 Q3

New York Stock Exchange

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the recent hedge fund action surrounding German American Bancorp., Inc. (NASDAQ:GABC).

What have hedge funds been doing with German American Bancorp., Inc. (NASDAQ:GABC)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GABC over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in German American Bancorp., Inc. (NASDAQ:GABC). Renaissance Technologies has a $8.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $0.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions comprise David Harding’s Winton Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and . In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to German American Bancorp., Inc. (NASDAQ:GABC), around 0.01% 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.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Driehaus Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified GABC as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to German American Bancorp., Inc. (NASDAQ:GABC). These stocks are Orchard Therapeutics plc (NASDAQ:ORTX), Ingles Markets, Incorporated (NASDAQ:IMKTA), OneSpan Inc. (NASDAQ:OSPN), and Bitauto Holdings Ltd (NYSE:BITA). This group of stocks’ market caps are closest to GABC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORTX 19 200945 -3
IMKTA 11 53738 -2
OSPN 13 63457 0
BITA 18 99076 3
Average 15.25 104304 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $10 million in GABC’s case. Orchard Therapeutics plc (NASDAQ:ORTX) is the most popular stock in this table. On the other hand Ingles Markets, Incorporated (NASDAQ:IMKTA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks German American Bancorp., Inc. (NASDAQ:GABC) is even less popular than IMKTA. Hedge funds dodged a bullet by taking a bearish stance towards GABC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately GABC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GABC investors were disappointed as the stock returned 13.6% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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