Is People’s United Financial, Inc. (PBCT) Going to Burn These Hedge Funds?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25th through October 30th, which clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards People’s United Financial, Inc. (NASDAQ:PBCT) and see how it was affected.

People’s United Financial, Inc. (NASDAQ:PBCT) has experienced a decrease in enthusiasm from smart money of late. PBCT was in 10 hedge funds’ portfolios at the end of the third quarter of 2015. There were 12 hedge funds in our database with PBCT positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Live Nation Entertainment, Inc. (NYSE:LYV), Silver Wheaton Corp. (USA) (NYSE:SLW), and ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) to gather more data points.

Today there are a lot of gauges market participants use to analyze their holdings. A couple of the most useful gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the broader indices by a very impressive amount (see the details here).

Keeping this in mind, let’s analyze the latest action encompassing People’s United Financial, Inc. (NASDAQ:PBCT).

Hedge fund activity in People’s United Financial, Inc. (NASDAQ:PBCT)

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a slump of 17% from the previous quarter. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the number one position in People’s United Financial, Inc. (NASDAQ:PBCT). The fund has recently reported a $33.4 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $14.5 million stake; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, Jacob Gottlieb’s Visium Asset Management and D. E. Shaw’s D E Shaw.

Seeing as People’s United Financial, Inc. (NASDAQ:PBCT) has witnessed bearish sentiment from the smart money, we can see that there is a sect of hedgies that elected to cut their entire stakes in the third quarter. Interestingly, Chao Ku’s Nine Chapters Capital Management dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $3.5 million in stock, and David Harding of Winton Capital Management was right behind this move, as the fund dumped about $2.3 million worth of stock. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to People’s United Financial, Inc. (NASDAQ:PBCT). These stocks are Live Nation Entertainment, Inc. (NYSE:LYV), Silver Wheaton Corp. (USA) (NYSE:SLW), ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS), and StanCorp Financial Group, Inc. (NYSE:SFG). All of these stocks’ market caps are closest to PBCT’s market cap.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Silver Wheaton Corp. (USA) (NYSE:SLW) is the least popular one with only 21 bullish hedge fund positions. People’s United Financial, Inc. (NASDAQ:PBCT) lags behind in terms of both the number of funds invested in the stock and the value of their holdings, which stood at $56 million. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.