Is State Auto Financial Corporation (NASDAQ:STFC) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in State Auto Financial Corporation (NASDAQ:STFC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare STFC to other stocks including US Ecology Inc. (NASDAQ:ECOL), Huron Consulting Group Inc. (NASDAQ:HURN), and EnPro Industries, Inc. (NYSE:NPO) 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. We’re going to take a look at the key hedge fund action surrounding State Auto Financial Corporation (NASDAQ:STFC).
How are hedge funds trading State Auto Financial Corporation (NASDAQ:STFC)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in STFC 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.
More specifically, Renaissance Technologies was the largest shareholder of State Auto Financial Corporation (NASDAQ:STFC), with a stake worth $8.4 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $5.8 million. Winton Capital Management, Millennium Management, and D E Shaw 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 Minerva Advisors allocated the biggest weight to State Auto Financial Corporation (NASDAQ:STFC), around 0.18% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to STFC.
Because State Auto Financial Corporation (NASDAQ:STFC) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies who sold off their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $2.6 million in stock, and Robert Jaffe’s Force Capital was right behind this move, as the fund dumped about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to State Auto Financial Corporation (NASDAQ:STFC). These stocks are US Ecology Inc. (NASDAQ:ECOL), Huron Consulting Group Inc. (NASDAQ:HURN), EnPro Industries, Inc. (NYSE:NPO), and Brookdale Senior Living, Inc. (NYSE:BKD). All of these stocks’ market caps resemble STFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECOL | 8 | 8206 | 3 |
| HURN | 11 | 43978 | 0 |
| NPO | 15 | 127791 | 4 |
| BKD | 20 | 478052 | -2 |
| Average | 13.5 | 164507 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $17 million in STFC’s case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks State Auto Financial Corporation (NASDAQ:STFC) is even less popular than ECOL. Hedge funds dodged a bullet by taking a bearish stance towards STFC. 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 STFC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); STFC investors were disappointed as the stock returned 1.2% 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.
