Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Sterling Bancorp (NYSE:STL).
Sterling Bancorp (NYSE:STL) has seen an increase in hedge fund sentiment recently. STL was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with STL holdings at the end of the previous quarter. Our calculations also showed that STL isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most stock holders, hedge funds are perceived as worthless, old financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the leaders of this group, around 750 funds. Most estimates calculate that this group of people watch over the majority of the smart money’s total asset base, and by tailing their top equity investments, Insider Monkey has spotted a few investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the latest hedge fund action regarding Sterling Bancorp (NYSE:STL).
How have hedgies been trading Sterling Bancorp (NYSE:STL)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in STL a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Sterling Bancorp (NYSE:STL), which was worth $124 million at the end of the second quarter. On the second spot was Diamond Hill Capital which amassed $90.8 million worth of shares. Moreover, Azora Capital, EJF Capital, and Basswood Capital were also bullish on Sterling Bancorp (NYSE:STL), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names were breaking ground themselves. Kahn Brothers, managed by Irving Kahn, assembled the biggest position in Sterling Bancorp (NYSE:STL). Kahn Brothers had $11.1 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $3.2 million investment in the stock during the quarter. The other funds with brand new STL positions are Matthew Tewksbury’s Stevens Capital Management, Mike Vranos’s Ellington, and Claes Fornell’s CSat Investment Advisory.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sterling Bancorp (NYSE:STL) but similarly valued. We will take a look at Spirit Realty Capital Inc (NYSE:SRC), MKS Instruments, Inc. (NASDAQ:MKSI), FirstCash, Inc. (NASDAQ:FCFS), and ALLETE Inc (NYSE:ALE). This group of stocks’ market caps are similar to STL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRC | 23 | 429246 | 6 |
| MKSI | 19 | 402127 | -3 |
| FCFS | 15 | 172032 | 3 |
| ALE | 24 | 261066 | 6 |
| Average | 20.25 | 316118 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $473 million in STL’s case. ALLETE Inc (NYSE:ALE) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 15 bullish hedge fund positions. Sterling Bancorp (NYSE:STL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately STL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STL were disappointed as the stock returned -5.4% during the third quarter 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.
