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Were Hedge Funds Right About Dumping United Community Banks Inc (UCBI)?

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 (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. In this article, we will take a closer look at hedge fund sentiment towards United Community Banks Inc (NASDAQ:UCBI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

United Community Banks Inc (NASDAQ:UCBI) has experienced a decrease in activity from the world’s largest hedge funds of late. UCBI was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with UCBI holdings at the end of the previous quarter. Our calculations also showed that UCBI 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.

In the financial world there are plenty of gauges investors put to use to size up their stock investments. Some of the most useful gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass their index-focused peers by a superb amount (see the details here).

Fred Cummings of Elizabeth Park Capital

Fred Cummings of Elizabeth Park 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. With all of this in mind let’s take a glance at the key hedge fund action regarding United Community Banks Inc (NASDAQ:UCBI).

How have hedgies been trading United Community Banks Inc (NASDAQ:UCBI)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the fourth quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in UCBI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of United Community Banks Inc (NASDAQ:UCBI), with a stake worth $18.5 million reported as of the end of September. Trailing Renaissance Technologies was Elizabeth Park Capital Management, which amassed a stake valued at $3.5 million. D E Shaw, Citadel Investment Group, and Two Sigma Advisors 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 Elizabeth Park Capital Management allocated the biggest weight to United Community Banks Inc (NASDAQ:UCBI), around 2.67% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to UCBI.

Judging by the fact that United Community Banks Inc (NASDAQ:UCBI) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there exists a select few funds that decided to sell off their positions entirely in the first quarter. Intriguingly, Noam Gottesman’s GLG Partners sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $5.4 million in stock. Anton Schutz’s fund, Mendon Capital Advisors, also sold off its stock, about $2.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to United Community Banks Inc (NASDAQ:UCBI). These stocks are SPX Corporation (NYSE:SPXC), Redfin Corporation (NASDAQ:RDFN), Progress Software Corporation (NASDAQ:PRGS), and STAAR Surgical Company (NASDAQ:STAA). This group of stocks’ market caps are similar to UCBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPXC 14 47679 -5
RDFN 20 106902 5
PRGS 22 197676 2
STAA 21 519115 -2
Average 19.25 217843 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $29 million in UCBI’s case. Progress Software Corporation (NASDAQ:PRGS) is the most popular stock in this table. On the other hand SPX Corporation (NYSE:SPXC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks United Community Banks Inc (NASDAQ:UCBI) is even less popular than SPXC. Hedge funds dodged a bullet by taking a bearish stance towards UCBI. 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 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately UCBI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); UCBI investors were disappointed as the stock returned 10.9% 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 so far in 2020.

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