While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding State Street Corporation (NYSE:STT).
Is STT a good stock to buy? State Street Corporation (NYSE:STT) has experienced a decrease in activity from the world’s largest hedge funds of late. State Street Corporation (NYSE:STT) was in 34 hedge funds’ portfolios at the end of September. The all time high for this statistic is 45. Our calculations also showed that STT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to check out the latest hedge fund action regarding State Street Corporation (NYSE:STT).
Do Hedge Funds Think STT Is A Good Stock To Buy Now?
At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in STT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in State Street Corporation (NYSE:STT) was held by Yacktman Asset Management, which reported holding $210.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $78.5 million position. Other investors bullish on the company included GAMCO Investors, Prana Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to State Street Corporation (NYSE:STT), around 4.85% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 3.12 percent of its 13F equity portfolio to STT.
Because State Street Corporation (NYSE:STT) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers that elected to cut their positions entirely in the third quarter. Interestingly, Brandon Haley’s Holocene Advisors dumped the biggest stake of the 750 funds watched by Insider Monkey, comprising about $24.1 million in stock, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund said goodbye to about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as State Street Corporation (NYSE:STT) but similarly valued. We will take a look at West Pharmaceutical Services Inc. (NYSE:WST), Ecopetrol S.A. (NYSE:EC), Arthur J. Gallagher & Co. (NYSE:AJG), Alexandria Real Estate Equities Inc (NYSE:ARE), Nasdaq, Inc. (NASDAQ:NDAQ), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Rogers Communications Inc. (NYSE:RCI). All of these stocks’ market caps are closest to STT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WST | 41 | 375693 | 14 |
| EC | 7 | 87102 | -4 |
| AJG | 35 | 320853 | 6 |
| ARE | 25 | 168133 | 7 |
| NDAQ | 32 | 220480 | 7 |
| IBKR | 28 | 787440 | -4 |
| RCI | 15 | 264156 | -1 |
| Average | 26.1 | 317694 | 3.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $493 million in STT’s case. West Pharmaceutical Services Inc. (NYSE:WST) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. State Street Corporation (NYSE:STT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STT is 65.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on STT as the stock returned 19.1% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
