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 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% 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’ 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 Signature Bank (NASDAQ:SBNY).
Signature Bank (NASDAQ:SBNY) has seen an increase in support from the world’s most elite money managers in recent months. SBNY was in 36 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with SBNY holdings at the end of the previous quarter. Overall hedge fund sentiment towards Signature Bank has never been this bullish. This is usually a bullish sign. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed similar performances from OKTA, Twilio, CCK, MSCI, MASI and Progressive Corporation (PGR); these stocks returned 37%, 37%, 35%, 29%, 28% and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management (BAM), Atlassian Corporation (TEAM), RCL, MTB, VAR, RNG, FIVE, ECA and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5-3 months of this year.
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’ 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the recent hedge fund action regarding Signature Bank (NASDAQ:SBNY).
What have hedge funds been doing with Signature Bank (NASDAQ:SBNY)?
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBNY over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Signature Bank (NASDAQ:SBNY), which was worth $162 million at the end of the third quarter. On the second spot was Millennium Management which amassed $83.7 million worth of shares. Moreover, First Pacific Advisors LLC, Spindletop Capital, and Balyasny Asset Management were also bullish on Signature Bank (NASDAQ:SBNY), allocating a large percentage of their portfolios to this stock.
Consequently, specific money managers were breaking ground themselves. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, established the largest position in Signature Bank (NASDAQ:SBNY). First Pacific Advisors LLC had $83.4 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also made a $19.6 million investment in the stock during the quarter. The other funds with brand new SBNY positions are Anand Parekh’s Alyeska Investment Group, Robert Pohly’s Samlyn Capital, and Ravi Chopra’s Azora Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Signature Bank (NASDAQ:SBNY) but similarly valued. These stocks are Kirkland Lake Gold Ltd. (NYSE:KL), Sealed Air Corporation (NYSE:SEE), Bio-Techne Corporation (NASDAQ:TECH), and People’s United Financial, Inc. (NASDAQ:PBCT). This group of stocks’ market caps are similar to SBNY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KL | 23 | 258433 | 3 |
| SEE | 31 | 941077 | 1 |
| TECH | 17 | 298051 | -1 |
| PBCT | 22 | 118312 | 2 |
| Average | 23.25 | 403968 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $404 million. That figure was $597 million in SBNY’s case. Sealed Air Corporation (NYSE:SEE) is the most popular stock in this table. On the other hand Bio-Techne Corporation (NASDAQ:TECH) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Signature Bank (NASDAQ:SBNY) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SBNY as the stock returned 27.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
