We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether M&T Bank Corporation (NYSE:MTB) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
M&T Bank Corporation (NYSE:MTB) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare MTB to other stocks including Corning Incorporated (NYSE:GLW), United Airlines Holdings Inc (NYSE:UAL), and ResMed Inc. (NYSE:RMD) 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.
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 41 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.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the latest hedge fund action regarding M&T Bank Corporation (NYSE:MTB).
What does smart money think about M&T Bank Corporation (NYSE:MTB)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MTB over the last 18 quarters. 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 M&T Bank Corporation (NYSE:MTB) was held by Berkshire Hathaway, which reported holding $913.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $86.2 million position. Other investors bullish on the company included Citadel Investment Group, Balyasny Asset Management, and Gillson Capital. In terms of the portfolio weights assigned to each position Strycker View Capital allocated the biggest weight to M&T Bank Corporation (NYSE:MTB), around 7.53% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 3.17 percent of its 13F equity portfolio to MTB.
Due to the fact that M&T Bank Corporation (NYSE:MTB) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their positions entirely heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of all the hedgies followed by Insider Monkey, totaling about $17.6 million in stock. Renaissance Technologies, also said goodbye to its stock, about $7.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as M&T Bank Corporation (NYSE:MTB) but similarly valued. These stocks are Corning Incorporated (NYSE:GLW), United Airlines Holdings Inc (NASDAQ:UAL), ResMed Inc. (NYSE:RMD), and Dollar Tree, Inc. (NASDAQ:DLTR). This group of stocks’ market valuations are closest to MTB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GLW | 35 | 221721 | 5 |
| UAL | 62 | 6947983 | 10 |
| RMD | 21 | 172399 | -2 |
| DLTR | 51 | 1620166 | -1 |
| Average | 42.25 | 2240567 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $2241 million. That figure was $1357 million in MTB’s case. United Airlines Holdings Inc (NASDAQ:UAL) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 21 bullish hedge fund positions. M&T Bank Corporation (NYSE:MTB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately MTB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MTB investors were disappointed as the stock returned -34% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
