Did Hedge Funds Make The Right Call On SLM Corp (SLM) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SLM Corp (NASDAQ:SLM) and determine whether hedge funds had an edge regarding this stock.

Is SLM Corp (NASDAQ:SLM) ready to rally soon? Money managers were turning less bullish. The number of bullish hedge fund positions shrunk by 12 lately. Our calculations also showed that SLM 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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Tannenbaum of Fir Tree

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now let’s take a peek at the key hedge fund action encompassing SLM Corp (NASDAQ:SLM).

What does smart money think about SLM Corp (NASDAQ:SLM)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SLM over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Jeffrey Ubben’s ValueAct Capital has the number one position in SLM Corp (NASDAQ:SLM), worth close to $232.2 million, amounting to 3.3% of its total 13F portfolio. The second most bullish fund manager is Fir Tree, led by Jeffrey Tannenbaum, holding a $94.4 million position; the fund has 8.3% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Lauren Taylor Wolfe’s Impactive Capital, Steve Cohen’s Point72 Asset Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to SLM Corp (NASDAQ:SLM), around 14.27% of its 13F portfolio. Fir Tree is also relatively very bullish on the stock, earmarking 8.32 percent of its 13F equity portfolio to SLM.

Due to the fact that SLM Corp (NASDAQ:SLM) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers who were dropping their positions entirely by the end of the first quarter. At the top of the heap, Steven Tananbaum’s GoldenTree Asset Management sold off the largest investment of all the hedgies monitored by Insider Monkey, totaling about $26.2 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $17.6 million worth. These moves are important to note, as total hedge fund interest fell by 12 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SLM Corp (NASDAQ:SLM) but similarly valued. We will take a look at Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC), PNM Resources, Inc. (NYSE:PNM), TechnipFMC plc (NYSE:FTI), and Ashland Global Holdings Inc.. (NYSE:ASH). All of these stocks’ market caps resemble SLM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $430 million in SLM’s case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 5 bullish hedge fund positions. SLM Corp (NASDAQ:SLM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately SLM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SLM were disappointed as the stock returned -1.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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