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Were Hedge Funds Right About Selling Customers Bancorp Inc (CUBI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Customers Bancorp Inc (NYSE:CUBI) and determine whether the smart money was really smart about this stock.

Customers Bancorp Inc (NYSE:CUBI) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that CUBI 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.

If you’d ask most stock holders, hedge funds are assumed to be unimportant, outdated financial vehicles of the past. While there are greater than 8000 funds with their doors open at present, Our researchers hone in on the elite of this group, about 850 funds. These money managers orchestrate the majority of all hedge funds’ total asset base, and by following their finest picks, Insider Monkey has spotted numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

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 check out the latest hedge fund action surrounding Customers Bancorp Inc (NYSE:CUBI).

What does smart money think about Customers Bancorp Inc (NYSE:CUBI)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CUBI over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Customers Bancorp Inc (NYSE:CUBI) was held by Basswood Capital, which reported holding $8.4 million worth of stock at the end of September. It was followed by Third Avenue Management with a $6.1 million position. Other investors bullish on the company included Newtyn Management, Renaissance Technologies, and GLG Partners. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Customers Bancorp Inc (NYSE:CUBI), around 0.98% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, earmarking 0.92 percent of its 13F equity portfolio to CUBI.

Judging by the fact that Customers Bancorp Inc (NYSE:CUBI) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who were dropping their positions entirely heading into Q4. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $1.8 million in stock, and Frederick DiSanto’s Ancora Advisors was right behind this move, as the fund sold off about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Customers Bancorp Inc (NYSE:CUBI). These stocks are Preferred Apartment Communities Inc. (NYSE:APTS), Hemisphere Media Group Inc (NASDAQ:HMTV), SI-BONE, Inc. (NASDAQ:SIBN), and Voyager Therapeutics, Inc. (NASDAQ:VYGR). All of these stocks’ market caps resemble CUBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APTS 9 7482 0
HMTV 9 26404 1
SIBN 19 77588 12
VYGR 15 50333 -5
Average 13 40452 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $25 million in CUBI’s case. SI-BONE, Inc. (NASDAQ:SIBN) is the most popular stock in this table. On the other hand Preferred Apartment Communities Inc. (NYSE:APTS) is the least popular one with only 9 bullish hedge fund positions. Customers Bancorp Inc (NYSE:CUBI) 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately CUBI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CUBI investors were disappointed as the stock returned 5.6% 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.