At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Barrett Business Services, Inc. (NASDAQ:BBSI) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Barrett Business Services, Inc. (NASDAQ:BBSI) has experienced an increase in hedge fund interest lately. BBSI was in 13 hedge funds' portfolios at the end of March. There were 12 hedge funds in our database with BBSI positions at the end of the previous quarter. Our calculations also showed that BBSI 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26092" align="aligncenter" width="400"] Joel Greenblatt of Gotham Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 peek at the fresh hedge fund action regarding Barrett Business Services, Inc. (NASDAQ:BBSI).
What have hedge funds been doing with Barrett Business Services, Inc. (NASDAQ:BBSI)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BBSI over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Barrett Business Services, Inc. (NASDAQ:BBSI) was held by Renaissance Technologies, which reported holding $16.1 million worth of stock at the end of September. It was followed by Cloverdale Capital Management with a $10.1 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Polaris Capital Management. In terms of the portfolio weights assigned to each position Cloverdale Capital Management allocated the biggest weight to Barrett Business Services, Inc. (NASDAQ:BBSI), around 7.9% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to BBSI.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Polaris Capital Management, managed by Bernard Horn, assembled the most outsized position in Barrett Business Services, Inc. (NASDAQ:BBSI). Polaris Capital Management had $1.3 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $0.4 million position during the quarter. The other funds with brand new BBSI positions are Matthew Hulsizer's PEAK6 Capital Management and Tim Curro's Value Holdings LP.
Let's now take a look at hedge fund activity in other stocks similar to Barrett Business Services, Inc. (NASDAQ:BBSI). These stocks are El Pollo LoCo Holdings Inc (NASDAQ:LOCO), Corporacion America Airports SA (NYSE:CAAP), Benefytt Technologies, Inc. (NASDAQ:BFYT), and Repro Med Systems, Inc. (NASDAQ:KRMD). This group of stocks' market caps are closest to BBSI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOCO,9,3858,-3 CAAP,8,7488,-2 BFYT,16,115245,-2 KRMD,10,9334,2 Average,10.75,33981,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $39 million in BBSI's case. Benefytt Technologies, Inc. (NASDAQ:BFYT) is the most popular stock in this table. On the other hand Corporacion America Airports SA (NYSE:CAAP) is the least popular one with only 8 bullish hedge fund positions. Barrett Business Services, Inc. (NASDAQ:BBSI) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on BBSI as the stock returned 34.3% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.