It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority 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’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Banco Santander, S.A. (NYSE:SAN).
Banco Santander, S.A. (NYSE:SAN) investors should pay attention to a decrease in enthusiasm from smart money lately. Our calculations also showed that SAN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Platt of BlueCrest Capital Mgmt.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action encompassing Banco Santander, S.A. (NYSE:SAN).
How are hedge funds trading Banco Santander, S.A. (NYSE:SAN)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in SAN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in Banco Santander, S.A. (NYSE:SAN), worth close to $445.1 million, amounting to 0.5% of its total 13F portfolio. Coming in second is Renaissance Technologies, which holds a $56.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to Banco Santander, S.A. (NYSE:SAN), around 1.2% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.64 percent of its 13F equity portfolio to SAN.
Judging by the fact that Banco Santander, S.A. (NYSE:SAN) has witnessed falling interest from the smart money, logic holds that there was a specific group of hedgies that elected to cut their positions entirely last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of the 750 funds followed by Insider Monkey, totaling about $37.7 million in stock, and Robert Emil Zoellner’s Alpine Associates was right behind this move, as the fund dumped about $33.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Banco Santander, S.A. (NYSE:SAN) but similarly valued. We will take a look at Mitsubishi UFJ Financial Group Inc (NYSE:MUFG), Banco Bradesco SA (NYSE:BBD), China Life Insurance Company Ltd. (NYSE:LFC), and Dominion Energy, Inc. (NYSE:D). This group of stocks’ market caps are closest to SAN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MUFG | 10 | 60064 | -2 |
| BBD | 16 | 595049 | 2 |
| LFC | 8 | 34563 | 0 |
| D | 42 | 766846 | 3 |
| Average | 19 | 364131 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $646 million in SAN’s case. Dominion Energy, Inc. (NYSE:D) is the most popular stock in this table. On the other hand China Life Insurance Company Ltd. (NYSE:LFC) is the least popular one with only 8 bullish hedge fund positions. Banco Santander, S.A. (NYSE:SAN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SAN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SAN 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
