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Were Hedge Funds Right About Berkshire Hills Bancorp (BHLB)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Berkshire Hills Bancorp, Inc. (NYSE:BHLB).

Is Berkshire Hills Bancorp, Inc. (NYSE:BHLB) a buy, sell, or hold? The smart money is taking a pessimistic view. The number of long hedge fund bets fell by 3 in recent months. Our calculations also showed that BHLB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BHLB was in 9 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 12 hedge funds in our database with BHLB holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the fresh hedge fund action surrounding Berkshire Hills Bancorp, Inc. (NYSE:BHLB).

What does smart money think about Berkshire Hills Bancorp, Inc. (NYSE:BHLB)?

At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the third quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in BHLB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Berkshire Hills Bancorp, Inc. (NYSE:BHLB), which was worth $16.6 million at the end of the third quarter. On the second spot was Millennium Management which amassed $11.1 million worth of shares. EJF Capital, Citadel Investment Group, and Paloma Partners 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 EJF Capital allocated the biggest weight to Berkshire Hills Bancorp, Inc. (NYSE:BHLB), around 1.09% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to BHLB.

Judging by the fact that Berkshire Hills Bancorp, Inc. (NYSE:BHLB) has witnessed a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers that elected to cut their entire stakes heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest investment of the 750 funds watched by Insider Monkey, comprising close to $1.8 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.8 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Berkshire Hills Bancorp, Inc. (NYSE:BHLB). We will take a look at National Research Corporation (NASDAQ:NRC), Kite Realty Group Trust (NYSE:KRG), BP Midstream Partners LP (NYSE:BPMP), and Talos Energy, Inc. (NYSE:TALO). All of these stocks’ market caps resemble BHLB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRC 9 54049 -1
KRG 13 81500 2
BPMP 6 27556 0
TALO 14 62279 -2
Average 10.5 56346 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $42 million in BHLB’s case. Talos Energy, Inc. (NYSE:TALO) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 6 bullish hedge fund positions. Berkshire Hills Bancorp, Inc. (NYSE:BHLB) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately BHLB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BHLB investors were disappointed as the stock returned -54.5% during the same time period 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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