We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards KeyCorp (NYSE:KEY).
KeyCorp (NYSE:KEY) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic is 46. KEY shareholders have witnessed a decrease in enthusiasm from smart money lately. There were 41 hedge funds in our database with KEY holdings at the end of March. Our calculations also showed that KEY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment 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. Now let’s take a look at the fresh hedge fund action surrounding KeyCorp (NYSE:KEY).
Do Hedge Funds Think KEY Is A Good Stock To Buy Now?
At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in KEY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in KeyCorp (NYSE:KEY) was held by Citadel Investment Group, which reported holding $73.7 million worth of stock at the end of June. It was followed by Pzena Investment Management with a $73 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Full18 Capital allocated the biggest weight to KeyCorp (NYSE:KEY), around 2.58% of its 13F portfolio. Elizabeth Park Capital Management is also relatively very bullish on the stock, dishing out 2.55 percent of its 13F equity portfolio to KEY.
Since KeyCorp (NYSE:KEY) has experienced falling interest from the smart money, it’s safe to say that there were a few fund managers that slashed their entire stakes in the second quarter. It’s worth mentioning that Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors sold off the largest investment of the 750 funds monitored by Insider Monkey, comprising about $31.7 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund said goodbye to about $17.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KeyCorp (NYSE:KEY) but similarly valued. We will take a look at Entergy Corporation (NYSE:ETR), L Brands Inc (NYSE:LB), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Lyft, Inc. (NASDAQ:LYFT), Avangrid, Inc. (NYSE:AGR), Wheaton Precious Metals Corp. (NYSE:WPM), and Devon Energy Corporation (NYSE:DVN). All of these stocks’ market caps resemble KEY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ETR | 31 | 595450 | 0 |
| LB | 53 | 6315005 | -6 |
| ALNY | 33 | 1022981 | 0 |
| LYFT | 43 | 1385923 | -17 |
| AGR | 12 | 46317 | -3 |
| WPM | 26 | 471762 | -2 |
| DVN | 50 | 1039305 | -2 |
| Average | 35.4 | 1553820 | -4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1554 million. That figure was $443 million in KEY’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 12 bullish hedge fund positions. KeyCorp (NYSE:KEY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KEY is 64.2. 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 KEY as the stock returned 11.6% 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.
