Hedge Funds Are Souring On Synchrony Financial (SYF)

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Synchrony Financial (NYSE:SYF).

Is Synchrony Financial (NYSE:SYF) the right pick for your portfolio? Hedge funds were taking a bearish view. The number of long hedge fund bets were trimmed by 10 recently. Synchrony Financial (NYSE:SYF) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 82. Our calculations also showed that SYF isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 49 hedge funds in our database with SYF holdings at the end of March.

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 S&P 500 ETFs by 79 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.

Paul Reeder of PAR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a glance at the fresh hedge fund action regarding Synchrony Financial (NYSE:SYF).

Do Hedge Funds Think SYF Is A Good Stock To Buy Now?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in SYF a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the most valuable position in Synchrony Financial (NYSE:SYF), worth close to $513.3 million, amounting to 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Paul Reeder and Edward Shapiro of PAR Capital Management, with a $359 million position; the fund has 8.8% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions encompass Noam Gottesman’s GLG Partners, Jeremy Hosking’s Hosking Partners and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 8.79% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, dishing out 2.29 percent of its 13F equity portfolio to SYF.

Since Synchrony Financial (NYSE:SYF) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that decided to sell off their full holdings by the end of the second quarter. Intriguingly, John Smith Clark’s Southpoint Capital Advisors said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $239.2 million in stock, and Parag Vora’s HG Vora Capital Management was right behind this move, as the fund dropped about $111.8 million worth. These transactions are interesting, as total hedge fund interest fell by 10 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. We will take a look at WEC Energy Group, Inc. (NYSE:WEC), American Water Works Company, Inc. (NYSE:AWK), Magna International Inc. (NYSE:MGA), Yum China Holdings, Inc. (NYSE:YUMC), Lufax Holding Ltd (NYSE:LU), Garmin Ltd. (NASDAQ:GRMN), and Franco-Nevada Corporation (NYSE:FNV). This group of stocks’ market valuations match SYF’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $1541 million in SYF’s case. Magna International Inc. (NYSE:MGA) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 19 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYF is 59.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on SYF as the stock returned 1.6% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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