Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Sterling Bancorp (NYSE:STL) a good investment now? It looks like money managers are buying. During the third quarter, the number of investors from the Insider Monkey database bullish on STL went up by four to 13. At the end of this article we will also compare STL to other stocks including Chemed Corporation (NYSE:CHE), Electronics For Imaging, Inc. (NASDAQ:EFII), and Paylocity Holding Corp (NASDAQ:PCTY) to get a better sense of its popularity.
Follow Sterling Bancorp (NYSE:STL)
Follow Sterling Bancorp (NYSE:STL)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Kevin George/Shutterstock.com
With all of this in mind, we’re going to go over the fresh action encompassing Sterling Bancorp (NYSE:STL).
How are hedge funds trading Sterling Bancorp (NYSE:STL)?
At the end of the third quarter, 13 funds tracked by Insider Monkey held long positions in Sterling Bancorp, which represents an increase of 44% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in STL heading into 2016. 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, Mario Gabelli’s GAMCO Investors has the biggest position in Sterling Bancorp (NYSE:STL), worth close to $20.6 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund is Kahn Brothers, with a $17.7 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions contain Ric Dillon’s Diamond Hill Capital and Matthew Lindenbaum’s Basswood Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Millennium Management, one of the 10 largest funds in the world, created the largest position in Sterling Bancorp (NYSE:STL). Millennium Management had $6.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.7 million position during the quarter. The following funds were also among the new STL investors: Paul Tudor Jones’ Tudor Investment Corp, Joel Greenblatt’s Gotham Asset Management, and Mike Vranos’ Ellington.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sterling Bancorp (NYSE:STL) but similarly valued. We will take a look at Chemed Corporation (NYSE:CHE), Electronics For Imaging, Inc. (NASDAQ:EFII), Paylocity Holding Corp (NASDAQ:PCTY), and M/A-COM Technology Solutions Holdings (NASDAQ:MTSI). This group of stocks’ market values are similar to STL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHE | 15 | 243945 | -2 |
| EFII | 10 | 158491 | 0 |
| PCTY | 13 | 72004 | 4 |
| MTSI | 15 | 56196 | 0 |
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $133 million, which is higher than the $78 million figure in STL’s case. Chemed Corporation (NYSE:CHE) is the most popular stock in this table. On the other hand Electronics For Imaging, Inc. (NASDAQ:EFII) is the least popular one with only 10 funds holding shares. Sterling Bancorp (NYSE:STL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Chemed Corporation (NYSE:CHE) might be a better candidate to consider taking a long position in.
Disclosure: none
