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

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Customers Bancorp Inc (NYSE:CUBI).

Customers Bancorp Inc (NYSE:CUBI) shareholders have witnessed a decrease in hedge fund interest recently. Our calculations also showed that CUBI isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the new hedge fund action surrounding Customers Bancorp Inc (NYSE:CUBI).

How have hedgies been trading Customers Bancorp Inc (NYSE:CUBI)?

At Q2’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 first quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in CUBI a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

No of Hedge Funds with CUBI Positions

Among these funds, Newtyn Management held the most valuable stake in Customers Bancorp Inc (NYSE:CUBI), which was worth $11.7 million at the end of the second quarter. On the second spot was Third Avenue Management which amassed $11.4 million worth of shares. Moreover, GLG Partners, Basswood Capital, and Renaissance Technologies were also bullish on Customers Bancorp Inc (NYSE:CUBI), allocating a large percentage of their portfolios to this stock.

Because Customers Bancorp Inc (NYSE:CUBI) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes in the second quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $1.6 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also cut its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Customers Bancorp Inc (NYSE:CUBI) but similarly valued. These stocks are The Manitowoc Company, Inc. (NYSE:MTW), Luther Burbank Corporation (NASDAQ:LBC), WideOpenWest, Inc. (NYSE:WOW), and Tristate Capital Holdings Inc (NASDAQ:TSC). This group of stocks’ market values are closest to CUBI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTW 13 110489 -7
LBC 7 9917 1
WOW 8 15124 -3
TSC 10 47224 -3
Average 9.5 45689 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $46 million in CUBI’s case. The Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand Luther Burbank Corporation (NASDAQ:LBC) is the least popular one with only 7 bullish hedge fund positions. Customers Bancorp Inc (NYSE:CUBI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CUBI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CUBI were disappointed as the stock returned -1.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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