Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in First Business Financial Services Inc (NASDAQ:FBIZ)? The smart money sentiment can provide an answer to this question.
First Business Financial Services Inc (NASDAQ:FBIZ) was in 3 hedge funds’ portfolios at the end of March. The all time high for this statistic is 5. FBIZ has seen an increase in hedge fund interest recently. There were 2 hedge funds in our database with FBIZ positions at the end of the fourth quarter. Our calculations also showed that FBIZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 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 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.
Roger Ibbotson of Zebra Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a gander at the key hedge fund action surrounding First Business Financial Services Inc (NASDAQ:FBIZ).
Do Hedge Funds Think FBIZ Is A Good Stock To Buy Now?
At first quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FBIZ over the last 23 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of First Business Financial Services Inc (NASDAQ:FBIZ), with a stake worth $5.5 million reported as of the end of March. Trailing Renaissance Technologies was Fourthstone LLC, which amassed a stake valued at $0.3 million. Zebra Capital Management was 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 Zebra Capital Management allocated the biggest weight to First Business Financial Services Inc (NASDAQ:FBIZ), around 0.26% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to FBIZ.
As one would reasonably expect, key hedge funds were breaking ground themselves. Fourthstone LLC, managed by Phil Stone, established the biggest position in First Business Financial Services Inc (NASDAQ:FBIZ). Fourthstone LLC had $0.3 million invested in the company at the end of the quarter. Roger Ibbotson’s Zebra Capital Management also initiated a $0.2 million position during the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as First Business Financial Services Inc (NASDAQ:FBIZ) but similarly valued. These stocks are Monroe Capital Corp (NASDAQ:MRCC), Matinas Biopharma Holdings, Inc. (NYSE:MTNB), Orion Energy Systems, Inc. (NASDAQ:OESX), Renren Inc (NYSE:RENN), Information Services Group, Inc. (NASDAQ:III), ADMA Biologics Inc (NASDAQ:ADMA), and O2Micro International Limited (NASDAQ:OIIM). All of these stocks’ market caps are similar to FBIZ’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRCC,3,2470,-2 MTNB,8,1763,-1 OESX,10,17546,1 RENN,3,1091,2 III,7,38598,0 ADMA,9,34064,-5 OIIM,5,29382,0 Average,6.4,17845,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.4 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $6 million in FBIZ’s case. Orion Energy Systems, Inc. (NASDAQ:OESX) is the most popular stock in this table. On the other hand Monroe Capital Corp (NASDAQ:MRCC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks First Business Financial Services Inc (NASDAQ:FBIZ) is even less popular than MRCC. Our overall hedge fund sentiment score for FBIZ is 24. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on FBIZ as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on FBIZ as the stock returned 11.2% since Q1 (through June 11th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.