Were Hedge Funds Right About Dumping Blue Hills Bancorp Inc (BHBK) ?

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Blue Hills Bancorp Inc (NYSE:BHBK).

Is Blue Hills Bancorp Inc (NYSE:BHBK) a buy right now? Hedge funds are in a pessimistic mood. The number of long hedge fund bets fell by 2 lately. Our calculations also showed that bhbk isn’t among the 30 most popular stocks among hedge funds. BHBK was in 7 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 9 hedge funds in our database with BHBK positions at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 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.


Let’s take a gander at the fresh hedge fund action surrounding Blue Hills Bancorp Inc (NYSE:BHBK).

Hedge fund activity in Blue Hills Bancorp Inc (NYSE:BHBK)

Heading into the first quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BHBK over the last 14 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with BHBK Positions

More specifically, Renaissance Technologies was the largest shareholder of Blue Hills Bancorp Inc (NYSE:BHBK), with a stake worth $12.7 million reported as of the end of December. Trailing Renaissance Technologies was Tudor Investment Corp, which amassed a stake valued at $2.7 million. Springbok Capital, D E Shaw, and GRT Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Blue Hills Bancorp Inc (NYSE:BHBK) has experienced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of funds that elected to cut their entire stakes last quarter. At the top of the heap, Chuck Royce’s Royce & Associates cut the biggest investment of the 700 funds followed by Insider Monkey, comprising about $9 million in stock. Ian Simm’s fund, Impax Asset Management, also dropped its stock, about $2.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Blue Hills Bancorp Inc (NYSE:BHBK). These stocks are HomeStreet Inc (NASDAQ:HMST), Merchants Bancorp (NASDAQ:MBIN), First Foundation Inc (NASDAQ:FFWM), and Collegium Pharmaceutical Inc (NASDAQ:COLL). This group of stocks’ market valuations resemble BHBK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMST 7 6175 1
MBIN 4 5638 -4
FFWM 11 80768 -2
COLL 13 121954 -2
Average 8.75 53634 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $20 million in BHBK’s case. Collegium Pharmaceutical Inc (NASDAQ:COLL) is the most popular stock in this table. On the other hand Merchants Bancorp (NASDAQ:MBIN) is the least popular one with only 4 bullish hedge fund positions. Blue Hills Bancorp Inc (NYSE:BHBK) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BHBK wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); BHBK investors were disappointed as the stock returned -100% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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