Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like M&T Bank Corporation (NYSE:MTB).
M&T Bank Corporation (NYSE:MTB) was in 29 hedge funds’ portfolios at the end of September. MTB has seen a decrease in hedge fund sentiment lately. There were 31 hedge funds in our database with MTB positions at the end of the previous quarter. Our calculations also showed that MTB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Bruce Kovner of Caxton Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the new hedge fund action regarding M&T Bank Corporation (NYSE:MTB).
What does smart money think about M&T Bank Corporation (NYSE:MTB)?
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 41 hedge funds with a bullish position in MTB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in M&T Bank Corporation (NYSE:MTB), worth close to $850.2 million, accounting for 0.4% of its total 13F portfolio. Coming in second is Dmitry Balyasny of Balyasny Asset Management, with a $110.7 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise Cliff Asness’s AQR Capital Management, David E. Shaw’s D E Shaw and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to M&T Bank Corporation (NYSE:MTB), around 2.17% of its portfolio. BlueMar Capital Management is also relatively very bullish on the stock, earmarking 1.27 percent of its 13F equity portfolio to MTB.
Because M&T Bank Corporation (NYSE:MTB) has experienced a decline in interest from the smart money, we can see that there was a specific group of hedgies that decided to sell off their positions entirely by the end of the third quarter. Intriguingly, Lee Ainslie’s Maverick Capital cut the largest stake of all the hedgies watched by Insider Monkey, valued at about $12 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund sold off about $9.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to M&T Bank Corporation (NYSE:MTB). These stocks are Smith & Nephew plc (NYSE:SNN), Pioneer Natural Resources Company (NYSE:PXD), AMETEK, Inc. (NYSE:AME), and Corteva, Inc. (NYSE:CTVA). This group of stocks’ market values resemble MTB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNN | 6 | 297897 | -8 |
| PXD | 47 | 1014267 | -1 |
| AME | 29 | 963376 | -2 |
| CTVA | 35 | 457542 | -1 |
| Average | 29.25 | 683271 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $683 million. That figure was $1248 million in MTB’s case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 6 bullish hedge fund positions. M&T Bank Corporation (NYSE:MTB) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MTB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MTB investors were disappointed as the stock returned 5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
