Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Provident Financial Services, Inc. (NYSE:PFS) to find out whether it was one of their high conviction long-term ideas.
Provident Financial Services, Inc. (NYSE:PFS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare PFS to other stocks including Mueller Industries, Inc. (NYSE:MLI), Comfort Systems USA, Inc. (NYSE:FIX), and InterDigital, Inc. (NASDAQ:IDCC) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the fresh hedge fund action encompassing Provident Financial Services, Inc. (NYSE:PFS).
How have hedgies been trading Provident Financial Services, Inc. (NYSE:PFS)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PFS over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Provident Financial Services, Inc. (NYSE:PFS), with a stake worth $32 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $11.9 million. Marshall Wace, Citadel Investment Group, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Provident Financial Services, Inc. (NYSE:PFS), around 0.07% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to PFS.
Seeing as Provident Financial Services, Inc. (NYSE:PFS) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few hedge funds who sold off their entire stakes in the third quarter. Intriguingly, David E. Shaw’s D E Shaw sold off the largest investment of all the hedgies monitored by Insider Monkey, worth close to $0.5 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Provident Financial Services, Inc. (NYSE:PFS) but similarly valued. These stocks are Mueller Industries, Inc. (NYSE:MLI), Comfort Systems USA, Inc. (NYSE:FIX), InterDigital, Inc. (NASDAQ:IDCC), and Bank of N.T. Butterfield & Son Limited (The) (NYSE:NTB). All of these stocks’ market caps match PFS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MLI | 18 | 185815 | 3 |
| FIX | 21 | 124284 | -2 |
| IDCC | 23 | 224163 | 7 |
| NTB | 15 | 114742 | 2 |
| Average | 19.25 | 162251 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $56 million in PFS’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand Bank of N.T. Butterfield & Son Limited (The) (NYSE:NTB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Provident Financial Services, Inc. (NYSE:PFS) is even less popular than NTB. Hedge funds dodged a bullet by taking a bearish stance towards PFS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PFS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PFS investors were disappointed as the stock returned 0.1% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
