Were Hedge Funds Right About Selling Pinnacle Financial Partners, Inc. (PNFP)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) and determine whether hedge funds skillfully traded this stock.

Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. PNFP has seen a decrease in enthusiasm from smart money in recent months. There were 16 hedge funds in our database with PNFP positions at the end of the previous quarter. Our calculations also showed that PNFP 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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 we’re going to take a glance at the recent hedge fund action surrounding Pinnacle Financial Partners, Inc. (NASDAQ:PNFP).

Hedge fund activity in Pinnacle Financial Partners, Inc. (NASDAQ:PNFP)

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PNFP over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Forest Hill Capital held the most valuable stake in Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), which was worth $8.8 million at the end of the third quarter. On the second spot was Columbus Circle Investors which amassed $7.7 million worth of shares. Elizabeth Park Capital Management, Balyasny Asset Management, and D E Shaw 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 Forest Hill Capital allocated the biggest weight to Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), around 4.69% of its 13F portfolio. Elizabeth Park Capital Management is also relatively very bullish on the stock, dishing out 3.91 percent of its 13F equity portfolio to PNFP.

Seeing as Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that decided to sell off their entire stakes last quarter. Intriguingly, Michael O’Keefe’s 12th Street Asset Management dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising about $22.8 million in stock, and Emanuel J. Friedman’s EJF Capital was right behind this move, as the fund said goodbye to about $11.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Pinnacle Financial Partners, Inc. (NASDAQ:PNFP). These stocks are Millicom International Cellular S.A. (NASDAQ:TIGO), Clean Harbors Inc (NYSE:CLH), Stifel Financial Corp. (NYSE:SF), and Texas Roadhouse Inc (NASDAQ:TXRH). All of these stocks’ market caps resemble PNFP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TIGO 7 52524 0
CLH 25 244225 1
SF 17 106242 2
TXRH 27 146523 4
Average 19 137379 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $32 million in PNFP’s case. Texas Roadhouse Inc (NASDAQ:TXRH) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 7 bullish hedge fund positions. Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) 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 PNFP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PNFP investors were disappointed as the stock returned 12.2% 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.