Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Is Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) a worthy investment now? Money managers are taking a pessimistic view. The number of long hedge fund bets were cut by 1 recently. Our calculations also showed that smfg isn’t among the 30 most popular stocks among hedge funds. SMFG was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. There were 11 hedge funds in our database with SMFG positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Paul Marshall of Marshall Wace
We’re going to go over the fresh hedge fund action regarding Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG).
What does smart money think about Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG)?
Heading into the second quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SMFG over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) was held by Fisher Asset Management, which reported holding $389.9 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $10.8 million position. Other investors bullish on the company included Two Sigma Advisors, Marshall Wace LLP, and D E Shaw.
Because Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) has witnessed bearish sentiment from the smart money, we can see that there were a few fund managers that decided to sell off their positions entirely in the third quarter. Intriguingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners cut the largest investment of the 700 funds followed by Insider Monkey, totaling about $23.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG). These stocks are General Dynamics Corporation (NYSE:GD), Exelon Corporation (NYSE:EXC), Allergan plc (NYSE:AGN), and Tesla Inc. (NASDAQ:TSLA). This group of stocks’ market valuations are similar to SMFG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GD | 42 | 6460054 | 5 |
| EXC | 33 | 2513347 | 0 |
| AGN | 53 | 3989971 | -8 |
| TSLA | 32 | 1066853 | -15 |
| Average | 40 | 3507556 | -4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $3508 million. That figure was $408 million in SMFG’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) is even less popular than TSLA. Hedge funds dodged a bullet by taking a bearish stance towards SMFG. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SMFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SMFG investors were disappointed as the stock returned -1.4% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
