5 Finance-Related Stocks Hedge Funds Dumped Like Crazy in Q3

The financial sector is getting a lot of attention post Trump’s victory as it is expected that his administration will have a positive effect on the companies. The Financial Select Sector SPDR Fund (NYSEARCA:XLF) has yielded a double digit percentage return over the last month, significantly outperforming the broader Dow Jones index. Investors in bank stocks are bullish as they think that a more business friendly political climate and lighter regulatory rules will be favorable for these stocks. An upcoming interest rate hike by the Federal Reserve should also boost the prospects for the financial stocks. That being said, some analysts think that the market rally is overdone as some of Trump’s campaign promises like trade restrictions might be negative for the financial sector. In this article, we look at 5 finance stocks that hedge funds dumped during the last quarter.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Synchrony Financial (NYSE:SYF) is a $29 billion consumer financial service company that provides a range of credit programs. Barry Rosenstein‘s Jana Partners was one of the biggest sellers of this stock during the third quarter, exiting its position in the stock entirely, by selling 4.4 million shares which comprised 1.9% of its portfolio value. Some of the other hedge funds which completely sold all their shares of Synchrony Financial (NYSE:SYF) included Appaloosa Management, Mik Capital and Arrowstreet Capital. Though the smart money is bearish on this stock, sell side analysts are overwhelmingly bullish with a whopping 19 out of the 21 analysts covering this stock rating it as a buy. The reason for their bullish stance may be due to the company beating market expectations by posting 69 cents of profit per share during the third quarter, compared to an average analyst estimate of 66 cents per share. The number of funds from our database having Synchrony Financial (NYSE:SYF) in their portfolios came down to 48 during the third quarter from 60 in the quarter earlier.

MGIC Investment Corp.(NYSE:MTG) was another financial stock that saw huge selling by hedge fund investors during the third quarter. As per our records, ten hedge funds exited the stock during the June-Sepetember period. Other than insurance, this private mortgage insurer also provides a number of services to the mortgage industry such as loan origination and portfolios, and mortgage lead generation. John Paulson was the biggest seller of this stock during the third quarter, selling 114.5 million shares. Other hedge funds which sold off all their positions in the stock were CNH Partners and GLG Partners. Janus Capital also substantially reduced its stake by selling 2.69 million shares, while Citadel Advisors sold 1.9 million shares.

Metlife Inc. (NYSE:MET) is one of the largest life insurance companies in the world with a market value of $61 billion. It also provides asset management and employee benefits services to other corporations. A large number of hedge funds sold this stock during the third quarter. Clearbridge Investments, Carlson Capital, Arrowstreet Capital, Two Sigma Investments and Cambiar Investors sold off a substantial portion of this stock. These funds must be regretting their decision as the stock has shot off by 20% in the last one month and is trading near the top of its yearly trading range at ~$55. The company recently announced a $3 billion stock buyback program in November and it also plans to spin off its USA based retail insurance business in the near future. The stock is currently giving a dividend yield of 2.89%. The number of elite funds long Metlife declined by 8 to 37 during the third quarter.

Western Alliance Bancorporation (NYSE:WAL), like Metlife Inc. (NYSE:MET), is trading near the top of its 52 week price range. Sirios Capital Management was the biggest hedge fund seller of this stock in the third quarter. The fund decreased Western Alliance Bancorporation (NYSE:WAL) holdings in its portfolio to 2% from 2.65% held previously. Alyeska Investment, Millenium Management, Balyasny Asset Management each sold more than 150,000 shares of this stock.  New York based hedge fund Clinton Group sold off its entire stake in the company. The company has a market capitalization of $4.96 billion and an earnings multiple of 19x. 8 out of the 9 analysts covering the stock have rated it as a buy and the mean earnings estimate is $2.5 per share for the current fiscal year. The number of funds from our system that hold Western Alliance Bancorporation (NYSE:WAL) declined to 26 from 34 quarter over quarter.

Paypal Holdings Inc. (NASDAQ:PYPL) is the world’s largest digital payments service provider and is expected by many bulls to do well in the long run, as the financial service space moves rapidly towards a “cashless” model. However, many hedge funds dumped the stock during the third quarter as the earnings multiple of the stock seems high at 34x. Stephen Mande’s Lone Pine Capital sold off its entire 1.87% portfolio holding in the stock during the quarter ending September. D.E. Shaw and Renaissance Technologies were the other famous hedge funds which sold millions of shares of this stock. The company has branched into a number of financial service areas such as “social payments” as well as lending to its vast merchant base. The number of funds in our database of 742 elite funds that have Paypal Holdings Inc. (NASDAQ:PYPL) in their portfolios decreased by 10 to 74 during the third quarter.

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