Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about The Bank of Nova Scotia (NYSE:BNS)?
Hedge fund interest in The Bank of Nova Scotia (NYSE:BNS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Dominion Resources, Inc. (NYSE:D), Intuitive Surgical, Inc. (NASDAQ:ISRG), and Intuit Inc. (NASDAQ:INTU) to gather more data points. Our calculations also showed that BNS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 41 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a look at the latest hedge fund action regarding The Bank of Nova Scotia (NYSE:BNS).
How are hedge funds trading The Bank of Nova Scotia (NYSE:BNS)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in BNS a year ago. So, let’s examine 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, Renaissance Technologies, holds the biggest position in The Bank of Nova Scotia (NYSE:BNS). Renaissance Technologies has a $267.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $44.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Noam Gottesman’s GLG Partners, Ray Dalio’s Bridgewater Associates and Prem Watsa’s Fairfax Financial Holdings. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to The Bank of Nova Scotia (NYSE:BNS), around 3.81% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, dishing out 0.55 percent of its 13F equity portfolio to BNS.
Judging by the fact that The Bank of Nova Scotia (NYSE:BNS) has experienced declining sentiment from hedge fund managers, logic holds that there was a specific group of funds who were dropping their full holdings by the end of the third quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising close to $25.8 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dumped about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to The Bank of Nova Scotia (NYSE:BNS). These stocks are Dominion Resources, Inc. (NYSE:D), Intuitive Surgical, Inc. (NASDAQ:ISRG), Intuit Inc. (NASDAQ:INTU), and Vale SA (NYSE:VALE). All of these stocks’ market caps are similar to BNS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| D | 37 | 773242 | -8 |
| ISRG | 51 | 1118443 | 6 |
| INTU | 54 | 1701224 | -1 |
| VALE | 26 | 1762450 | -3 |
| Average | 42 | 1338840 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1339 million. That figure was $414 million in BNS’s case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks The Bank of Nova Scotia (NYSE:BNS) is even less popular than VALE. Hedge funds dodged a bullet by taking a bearish stance towards BNS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately BNS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BNS investors were disappointed as the stock returned -23.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
