Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Bar Harbor Bankshares (NYSE:BHB).
Is Bar Harbor Bankshares (NYSE:BHB) a buy here? Hedge funds are in a bullish mood. The number of long hedge fund positions moved up by 3 lately. Our calculations also showed that BHB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to view the new hedge fund action regarding Bar Harbor Bankshares (NYSE:BHB).
Hedge fund activity in Bar Harbor Bankshares (NYSE:BHB)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BHB over the last 17 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in Bar Harbor Bankshares (NYSE:BHB). Royce & Associates has a $8.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $6.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that are bullish contain Bernard Horn's Polaris Capital Management, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Bar Harbor Bankshares (NYSE:BHB), around 0.08% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to BHB.
Now, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in Bar Harbor Bankshares (NYSE:BHB). Citadel Investment Group had $0.2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new BHB position is Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's now review hedge fund activity in other stocks similar to Bar Harbor Bankshares (NYSE:BHB). These stocks are Establishment Labs Holdings Inc. (NASDAQ:ESTA), PAR Technology Corporation (NYSE:PAR), Mitek Systems, Inc. (NASDAQ:MITK), and CalAmp Corp. (NASDAQ:CAMP). This group of stocks' market valuations are similar to BHB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESTA,7,57678,0 PAR,8,54520,3 MITK,15,39841,-2 CAMP,10,128434,-6 Average,10,70118,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $16 million in BHB's case. Mitek Systems, Inc. (NASDAQ:MITK) is the most popular stock in this table. On the other hand Establishment Labs Holdings Inc. (NASDAQ:ESTA) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Bar Harbor Bankshares (NYSE:BHB) is even less popular than ESTA. Hedge funds dodged a bullet by taking a bearish stance towards BHB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BHB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BHB investors were disappointed as the stock returned 3.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.