Hedge Funds Are Selling RBB Bancorp (RBB)

Abigail Fisher
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards RBB Bancorp (NASDAQ:RBB).

RBB Bancorp (NASDAQ:RBB) investors should be aware of a decrease in enthusiasm from smart money of late. RBB Bancorp (NASDAQ:RBB) was in 6 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that RBB isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Horn of Polaris Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let's take a gander at the key hedge fund action regarding RBB Bancorp (NASDAQ:RBB).

Hedge fund activity in RBB Bancorp (NASDAQ:RBB)

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 -33% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in RBB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Bernard Horn's Polaris Capital Management has the biggest position in RBB Bancorp (NASDAQ:RBB), worth close to $1.3 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is David Harding of Winton Capital Management, with a $1.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Renaissance Technologies and Emanuel J. Friedman's EJF Capital. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to RBB Bancorp (NASDAQ:RBB), around 0.06% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to RBB.

Because RBB Bancorp (NASDAQ:RBB) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of funds that slashed their entire stakes heading into Q4. At the top of the heap, John Overdeck and David Siegel's Two Sigma Advisors dropped the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $0.3 million in stock, and Roger Ibbotson's Zebra Capital Management was right behind this move, as the fund dropped about $0.2 million worth. These moves are interesting, 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 RBB Bancorp (NASDAQ:RBB). These stocks are Cooper-Standard Holdings Inc (NYSE:CPS), Westport Fuel Systems Inc. (NASDAQ:WPRT), Macatawa Bank Corporation (NASDAQ:MCBC), Park Aerospace Corp. (NYSE:PKE), Entercom Communications Corp. (NYSE:ETM), Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), and EMX Royalty Corporation (NYSE:EMX). This group of stocks' market caps resemble RBB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPS,11,25448,-2 WPRT,8,14304,-2 MCBC,9,16527,0 PKE,12,37961,2 ETM,17,13721,-1 NGVC,13,24830,1 EMX,3,9203,1 Average,10.4,20285,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $5 million in RBB's case. Entercom Communications Corp. (NYSE:ETM) is the most popular stock in this table. On the other hand EMX Royalty Corporation (NYSE:EMX) is the least popular one with only 3 bullish hedge fund positions. RBB Bancorp (NASDAQ:RBB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RBB is 29.1. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on RBB as the stock returned 38.9% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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

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