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Should You Avoid HarborOne Bancorp, Inc. (HONE)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtHarborOne Bancorp, Inc. (NASDAQ:HONE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

HarborOne Bancorp, Inc. (NASDAQ:HONE) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that HONE 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).

Video: 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 S&P 500 ETFs by more than 58 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. 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.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the latest hedge fund action regarding HarborOne Bancorp, Inc. (NASDAQ:HONE).

Hedge fund activity in HarborOne Bancorp, Inc. (NASDAQ:HONE)

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HONE over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of HarborOne Bancorp, Inc. (NASDAQ:HONE), with a stake worth $6 million reported as of the end of September. Trailing Renaissance Technologies was Driehaus Capital, which amassed a stake valued at $4.8 million. Castine Capital Management, Royce & Associates, and Seidman Investment Partnership 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 Seidman Investment Partnership allocated the biggest weight to HarborOne Bancorp, Inc. (NASDAQ:HONE), around 3.05% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, setting aside 2.41 percent of its 13F equity portfolio to HONE.

Judging by the fact that HarborOne Bancorp, Inc. (NASDAQ:HONE) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Noam Gottesman’s GLG Partners cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $1.6 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HarborOne Bancorp, Inc. (NASDAQ:HONE) but similarly valued. We will take a look at Interface, Inc. (NASDAQ:TILE), Donegal Group Inc (NASDAQ:DGICA), Mobileiron Inc (NASDAQ:MOBL), and Arch Resources, Inc. (NYSE:ARCH). This group of stocks’ market values are closest to HONE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TILE 15 17906 -5
DGICA 5 10086 0
MOBL 15 110592 -3
ARCH 24 88620 -2
Average 14.75 56801 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $29 million in HONE’s case. Arch Resources, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 5 bullish hedge fund positions. HarborOne Bancorp, Inc. (NASDAQ:HONE) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately HONE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HONE investors were disappointed as the stock returned 13.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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